A type of attributing interest in a foreign investment fund for which a person may not use the fair dividend rate method (JPMorgan Liquidity Funds: JPM US Dollar Liquidity LVNAV Fund - Institutional (dist.) Shares)

Reference

This determination is made under section 91AAO(1)(b) of the Tax Administration Act 1994. This power has been delegated by the Commissioner of Inland Revenue to the position of Technical Specialist under section 7 of the Tax Administration Act 1994.

Discussion (which does not form part of the determination)

Institutional (dist.) Shares in the JPM US Dollar Liquidity LVNAV Fund (the Fund) of JPMorgan Liquidity Funds to which this determination applies, are an attributing interest in a foreign investment fund (FIF) for New Zealand resident investors.

New Zealand resident investors are required to apply the FIF rules to determine their tax liability in respect of their investment in units in the Fund each year.

The Fund invests its assets in short-term USD-denominated Debt Securities, deposits with credit institutions and Reverse Repurchase Agreements. In addition to receiving a favourable assessment of their credit quality pursuant to the Management Company’s Internal Credit Procedures, Debt Securities with a long-term rating will be rated at least "A" and Debt Securities with a short-term rating will be rated at least "A-1" by Standard & Poor’s or otherwise similarly rated by another independent rating agency. The Fund may also invest in unrated Debt Securities of comparable credit quality to those specified above.

For New Zealand resident investors, Institutional (dist.) Shares in the Fund do not represent an attributing FIF interest that comprises of non-ordinary shares as described in section EX 46(10)(a)-(db) of the Income Tax Act 2007. Consequently, investors would not be prevented from using the FDR method pursuant to section EX 46(8)(a) of the Income Tax Act 2007 in the absence of a determination under section 91AAO of the Tax Administration Act 1994.

However due to the nature of the overall arrangement it is considered that the application of the FDR method would impose unnecessarily high compliance costs on New Zealand investors, as it would require performing a substantial number of quick sale adjustment calculations and associated foreign exchange calculations every time that the investor withdraws funds from the Fund during the year.

Scope of determination

This determination is issued on the basis of information provided to the Commissioner before the date of this determination and applies to an attributing interest in a FIF held by New Zealand resident investors in a non-resident issuer where:

1. This non-resident issuer:
   • is an open-ended investment company organised as a Société Anonyme under the laws of the Grand-Duchy of Luxembourg that issues multiple classes of shares; and
   • is known at the date of this determination as JPMorgan Liquidity Funds; and
   • is structured as an umbrella fund with segregated liability between sub-funds; and
   • is managed by JP Morgan Asset Management (Europe) S.à r.l.;
2. The attributing interest consists of a US dollar denominated class of shares, Premier (Dis) Shares, issued by that non-resident that provide exposure solely to the Fund.
3. The Fund:
   • Holds assets that predominantly (80% or more by value at a time in the income year) comprise high-quality short-term money market instruments, which are either USD denominated financial arrangements that are debt securities or instruments that are economically equivalent to USD debt.
   • Has not entered into any arrangements which provide an overall economic return as if the securities were denominated in New Zealand dollars.
   • May make distributions of income (if any) to the shareholders, either in the form of additional shares of the same class, or by way of a credit to a separate account, but does not guarantee that any income will be derived or that a distribution will be made.

Interpretation

In this determination, unless the context otherwise requires-

"Fair dividend rate method” means the fair dividend rate method under section YA 1 of the Income Tax Act 2007;

"Financial arrangement" means financial arrangement under section EW 3 of the Income Tax Act 2007;

"Foreign investment fund” means foreign investment fund under section YA 1 of the Income Tax Act 2007;

"Non-resident" means a person that is not resident in New Zealand for the purposes of the Income Tax Act 2007;

“The Fund” means the JPMorgan US Dollar Liquidity LVNAV Fund, a sub-fund of JPMorgan Liquidity Funds.

Determination

An attributing interest in a FIF to which this determination applies is a type of attributing interest for which a person may not use the FDR method to calculate FIF income from the interest.

Application Date

This determination applies for the 2021 income year and subsequent income years.

However, under section 91AAO(3B) of the Tax Administration Act 1994, this determination does not apply for a person and an income year beginning before the date of the determination unless the person chooses that the determination applies for the income year.

Dated on this 7th day of December 2020

Greg Adamson

Technical Specialist