Income Tax Act 2004

  • repealed
  • Income Tax Act 2004: repealed, on 1 April 2008, by section ZA 1(1) of the Income Tax Act 2007 (2007 No 97).
EX 43 Branch equivalent method
Formula

(1)

If a person is using the branch equivalent method to calculate FIF income or loss from an attributing interest in a FIF, the total FIF income or loss from all their attributing interests in the FIF for the relevant accounting period is calculated using the formula—

branch equivalent income or loss x income interest.

Definition of items in formula

(2)

The items in the formula are defined in subsections (3) and (4).

Branch equivalent income or loss

(3)

Branch equivalent income or loss is the branch equivalent income or loss of the FIF for the accounting period. This is calculated by applying section EX 21 of the CFC rules—

(a)

as if the FIF were a CFC and the person were calculating their attributed CFC income or loss; and

(b)

applying subsections (5) and (6).

Income interest

(4)

Income interest is the person’s income interest in the FIF for the accounting period. The income interest is calculated under all the following CFC rules (applying as if the FIF were a CFC):

(a)

sections EX 8 to EX 11 and EX 13 (which, in general, describe how to calculate an income interest by totalling direct and indirect interests):

(b)

sections EX 16 and EX 17 (which describe how to deal with periods of non-residence and variations in ownership during an accounting period):

(c)

section EX 27 (which describes a concession to allow ownership to be measured only on quarterly measurement dates).

Taxable distributions

(5)

If the FIF derives a taxable distribution from a non-qualifying trust in the accounting period,—

(a)

the taxable distribution is excluded when calculating the FIF’s branch equivalent income or loss (due to the combined effect of subsection (1) and section EX 21(32)); and

(b)

the person has additional attributed CFC income calculated by multiplying the taxable distribution by the person’s income interest in the FIF; and

(c)

the person is liable for income tax on the additional attributed CFC income at the rate in schedule 1 (Basic rates of income tax and specified superannuation contribution withholding tax) that applies to amounts under section HH 3(4) (Income of beneficiaries).

Calculation of additional FIF income or loss

(6)

If the FIF itself has an income interest (calculated under subsection (4)) in a foreign company for the accounting period, the person has additional FIF income or loss calculated using the formula—

interest x FIF’s FIF income or loss.

Definition of items in formula

(7)

In the formula,—

(a)

interest is the person’s income interest in the FIF for the period:

(b)

FIF’s FIF income or loss is the FIF’s FIF income or loss calculated under the rules in section EX 46(4) and (5), as if—

(i)

the FIF were the CFC referred to; and

(ii)

the FIF’s interest in the foreign company were an attributing interest, despite any application of section EX 32.

Application of CFC rules tax credit rules

(8)

The rules in sections LC 4 (Foreign tax credits: CFCs) and LC 5 (Group of companies CFC tax credits) apply to allow the person to claim foreign tax credits but on the basis of the assumptions made in subsection (9). The rules in those sections allow foreign tax credits relating to attributed CFC income but apply a jurisdictional ring-fencing approach to the use of tax credits.

Assumptions in reading tax credit rules

(9)

Sections LC 4 (Foreign tax credits: CFCs) and LC 5 (Group of companies CFC tax credits) are applied as if—

(a)

the FIF were a CFC; and

(b)

the FIF income of the person from the FIF were attributed CFC income; and

(c)

the person’s income interest (calculated under subsection (4)) were their relevant income interest for the purposes of those sections; and

(d)

any relevant person’s FIF income calculated under the branch equivalent method from a FIF that is resident in the relevant country were attributed CFC income.

Reduction in FIF loss to economic loss

(10)

In the cases described in subsections (11) and (12), the amount of any FIF loss calculated under subsections (1) and (6) is reduced to be equal to the person’s corresponding economic loss (if any).

Application of subsection (10): no economic loss

(11)

Subsection (10) applies if the person suffers no, or substantially no, economic loss corresponding to the FIF loss, whether because of a call option, a put option, or any other reason.

Application of subsection (10): FIF loss excessive

(12)

Subsection (10) also applies if the amount of FIF loss is more than any corresponding economic loss suffered by the person, whether because of the application of the rules for calculating the person’s income interest or any other reason.

Defined in this Act: accounting period , amount , attributed CFC income , attributing interest , branch equivalent income , branch equivalent method , CFC , FIF , FIF income , FIF loss , foreign company , income interest , income tax , loss , non-qualifying trust , non-resident , quarter , tax , taxable distribution

Compare: 1994 No 164 s CG 21

Subsection (4)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.