Attributable CFC amount

2011 amendments ensure that a controlled foreign company's portfolio investment entity income is accounted for correctly in determining its passive income.

Sections EX 20B(3) and EX 21E(8) of the Income Tax Act 2007

New sections EX 20B(3)(o) and EX 21E(8)(e) have been inserted to ensure that a controlled foreign company's (CFC's) portfolio investment entity (PIE) income is accounted for correctly in determining its passive income.

The sections provide that, if a CFC has invested into a PIE but has not been taxed correctly on the resulting income, the income is deemed to be "passive" (that is, an attributable CFC amount under section EX 20B or an added passive amount under section EX 21E). Such income is often taxable in New Zealand. This is on the basis that the income has not been taxed correctly in New Zealand previously.

If, on the other hand, a CFC has been taxed correctly on its PIE income (ie, at 28 percent), there is no need for that income to be deemed to be "passive" income as it has been taxed appropriately in New Zealand. Treating the income as passive could result in double-taxation of the CFC's investors.

Application date

These amendments apply from the date of commencement.