Section EX 55 — Income Tax Act 2007: Deemed rate of return method

EX 55 Deemed rate of return method Formula changes if interest changes (1) If a person is using the deemed rate of return method to calculate FIF income or loss from an attributing interest in a FIF for an income year, the FIF income or loss is calculated— (a) by the formula in subsection (3) (the standard formula ) if the person has held the interest unchanged throughout the income year; and (b) by totalling the amounts calculated by the formula in subsection (5) (the part-year formula ) for each part of the income year during which the interest is unchanged, in any other case. When interest changes (2) A person’s attributing interest in a FIF changes during an income year if the person— (a) acquires or increases the interest; or (b) disposes of or reduces the interest, but merely receiving an annuity payment from the interest is not a disposal or reduction. Standard formula (3) The standard formula is— opening book value × deemed rate. Definition of items in standard formula (4) In the standard formula,— (a) opening book value is the book value of the interest at the end of the previous income year, calculated under subsection (7): (b) deemed rate is the rate set by the Governor-General by Order in Council for this section for the relevant income year. Part-year formula (5) The part-year formula is— (opening book value + costs) × (deemed rate × days ) 365. Definition of items in part-year formula (6) In the part-year formula,— (a) opening book value is the book value, if any, of the interest at the end of the period before the part of the income year, calculated under subsection (7): (b) costs is the total for the part of the income year of— (i) all expenditure, if any, that the person incurs in acquiring or increasing the interest: (ii) income tax on the income of the FIF for which the person is liable under the laws of a country or territory outside New Zealand and which is paid by the person in the part of the income year: (c) deemed rate is the rate set by the Governor-General by Order in Council for this section for the relevant income year: (d) days is the number of days in the part of the income year; and for this purpose, an acquisition or increase is treated as occurring at the start of a day, and a disposition or reduction is treated as occurring at the end of a day. Closing book value formula (7) The book value, at the end of an income year or, in a case in which subsection (5) applies, a part of an income year, of an attributing interest of a person in a FIF under the deemed rate of return method is, unless subsection (9) applies, calculated using the formula (the closing book value formula )— (opening book value + costs + deemed income + top-up amounts) − gains. Definition of items in closing book value formula (8) In the closing book value formula,— (a) opening book value is the book value, if any, of the interest at the end of the previous income year or the part of the income year, calculated under subsection (7): (b) costs is the total for the income year or part of the income year of— (i) all expenditure, if any, that the person incurs in acquiring or increasing the interest: (ii) income tax on the income of the FIF for which the person is liable under the laws of a country or territory outside New Zealand and which is paid by the person in the income year or part of the income year: (c) deemed income is the FIF income from the interest for the year or the part of the income year calculated under subsection (3) or (5): (d) top-up amounts is amounts, gains from holding or disposing of the interest, that are top-up FIF income in the year under section EX 60 or EX 61 : (e) gains is the total of all amounts that the person derives during the year or the part of the income year from holding or disposing of the interest; the amounts including any foreign withholding tax or other amount that the person is allowed as a credit under section LE 1 (Tax credits for imputation credits) or LJ 2 (Tax credits for foreign income tax). Closing book value zero if changing method (9) The closing book value is always zero if the person is using a calculation method for the interest different from the deemed rate of return method at the end of the income year or, in a case to which subsection (5) applies, the part of the income year. Top-up income if deemed rate inadequate (10) If the closing book value of a person’s attributing interest in a FIF at the end of an income year or a part of an income year is below zero, the person has additional FIF income equal to the deficit for the relevant income year. When subsection (10) does not apply (11) Subsection (10) does not apply if— (a) the person is a natural person; and (b) at all times during the income year the total value of the person’s attributing interests in FIFs is $250,000 or less, the value of each interest being— (i) its book value, calculated under subsection (7), at the end of the previous income year, if the person held the interest then and used the deemed rate of return method to calculate FIF income for all attributing interests in the previous income year: (ii) its market value, in any other case; and (c) the deficit in closing book value arises only because the person disposed of some or all of the interest; and (d) the gain that the person derived from disposing of the interest or part-interest is not income, or is income only to the extent to which it gives rise to FIF income. Top-up income if gains more than deemed income (12) A person calculating FIF income under the deemed rate of return method can also have additional FIF income under section EX 60 . FIF income reduced on disposal if deemed rate excessive (13) If a person has disposed of the whole of an attributing interest in a FIF and the closing book value for the relevant income year or the part of the income year is more than zero, the excess is subtracted when the person’s FIF income under the deemed rate of return method for the income year is calculated. When subsection (13) does not apply (14) Subsection (13) does not apply if— (a) the person is a natural person; and (b) at all times during the income year the total value of attributing interests in FIFs held by the person is $250,000 or less, the value of each interest being— (i) its book value, calculated under subsection (7), at the end of the previous income year, if the person held the interest then and used the deemed rate of return method to calculate FIF income for all attributing interests in the previous income year: (ii) its market value, in any other case; and (c) the gain that the person derived from disposing of the interest or part-interest is not income, or is income only to the extent to which it gives rise to FIF income. Defined in this Act: amount , attributing interest , calculation method , deemed rate of return method , FIF , FIF income , foreign withholding tax , income , income year , loss , market value , pay , tax , Compare: 2004 No 35 s EX 45 Section EX 55(8)(e): amended (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 140(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).