FIFs Flashcards
What exemption is there for FIF interests for natural persons?
There is an exemption from FIF interests for natural persons where the costs of those interests doesn’t exceed $50,000.
Other than an exemption for shares in Australian ASX listed companies, what other Australian exemptions are there?
Exemptions for certain Australian unit trusts and superannuation funds.
What exemptions from FIF requirements are there with respect to CFCs?
Exemptions from FIF requirements where there is an income interest of more than 10%.
What exemptions are there from FIFs for direct interests in Australian companies?
There is an exemption were there is a direct income interest of more than 10%.
If an exemption applies from the FIF rules, what applies with respect to NZ income tax?
The general tax rules apply.
What are the implications of the general tax rules applying to taxpayers exempt from the FIF rules?
Dividends received and gains from the disposal of FIF interests held on revenue account will be taxable.
How is income calculated under the fair dividend method?
5% of the market value of the FIF interest at the start of the year (+quick value adjustment?)
What is the default method for FIF calculation?
Fair dividend rate
In what instances will the fair dividend method of FIF calculation not be applied?
Where the investment is a non-ordinary share, it is not practical to use this method (typically because of difficulties with market valuation). Or another available calculation method is chosen.
How is income calculated under the comparative value method?
The year’s total return (dividends and capital appreciation) s FIF income.
Who is the comparative value method mandatory for?
Non ordinary shares.
Who may use the comparative value method if they choose?
Natural persons and family trusts.
How is FIF income calculated under the cost method?
5% of the cost of the FIF interest (uplifted by 5% per annum) is FIF income.
How is FIF income calculated under the deemed rate of return method?
A prescribed rate of return is FIF income.
Who is required to use the deemed rate of return FIF method?
Non-ordinary shares whose market value cannot be ascertained.
How is FIF income calculated under the attributable FIF income method?
Passive income is treated as FIF income.
Who is the attributable FIF income method available to?
Only where the FIF interest is at least 10% and not a non-attributing active FIF (unless taxation under FIF rules is chosen).
When can a taxpayer in a non-attributing active FIF apply the attributable FIF income method?
When taxation under FIF rules is chosen.
Where taxation is applied under the FIF rules, is there also separate taxation of dividends and gains on disposal?
Not generally, no.
Are FIF interests required to be disclosed?
Yes, under section 61 of the TAA.
Under what section of the TAA are disclosures of FIF interests required?
Section 61
Can the Commissioner grant an exemption to FIF disclosure requirements?
Yes, under section 61(2) of the TAA.
Under what section of the TAA is the Commissioner able to grant an exemption to disclosing under the FIF rules?
Section 61(2)
What is the first type of resident taxpayer exempted from disclosing FIFs under the 2016 International tax disclosure exemption ITR27 from being required to disclose?
Taxpayers with an interest of less than 10% in a foreign company if it is not an attributing interest in a FIF or if it falls within the $50,000 de minimis exemption.
What is the second type of taxpayer exempted under the 2016 International tax disclosure exemption ITR27 from being required to disclose?
If the resident is not a widely-held entity, an attributing interest in a FIF that is an income interest of less than 10%
If the second type of taxpayer exemption from disclosing FIFs applies under the 2016 International tax disclosure exemption ITR27 where must the entity be resident?
The FIF must be from an entity incorporated or otherwise resident in a tax treaty country or territory.
For the second type of taxpayer exemption from disclosing FIFs applies under the 2016 International tax disclosure exemption ITR27 what FIF calculation method must be used?
Either the fair dividend or the Comparative Value FIF calculation methods.
What is the third type of taxpayer exempted from disclosing FIFs under the 2016 International tax disclosure exemption ITR27 from being required to disclose?
Widely held companies with an attributing interest of 10% or less.
For the third type of taxpayer exemption applies under the 2016 International tax disclosure exemption ITR27 what FIF calculation method must be used?
Either the fair dividend or the Comparative Value FIF calculation methods.
For the third type of taxpayer exempted from disclosing FIFs under the 2016 International tax disclosure exemption ITR27 what must they disclose instead?
The end-of-year New Zealand dollar market value of all such investments split by the jurisdiction in which the attributing interest in a FIF is held or listed.
What is an attributing interest under the TAA?
A direct income interest such as shares in a foreign company or units in a unit trust.
How is the natural person $50,000 threshold calculated for the purposes of the FIF rules?
A natural person is exempt from the FIF rules if the total costs of all FIF interests is not more than $50,000.
When calculating whether the $50,000 threshold for FIFs applies based on total costs of FIF interests, are for example ASX listed shareholdings taken into account?
No because interests such as ASX listed shareholdings are not FIF interests.
Why might there be a year’s grace if the $50,000 threshold is exceeded by purchases after the start of the income year?
Because there would be insufficient FIF interests at the start of the income year for the purposes of the fair dividend rate method and the cost method.
If the natural person $50,000 threshold is exceeded, is it exceeded for all FIFs or just those in excess of the threshold?
All FIFs
Does the natural person $50,000 threshold for exemption from the FIF riles apply to natural persons acting in their capacity as trustees?
No
Can the natural person $50,000 threshold be disregarded by taxpayers on the basis that the FIF rules apply despite having attributing interests costing less than $50,000?
Yes
Does the exemption from the FIF rules for shares held in an ASX-listed Australian companies, apply to stapled stock?
No
Other than being resident in Australia and not treated as being resident in a country other than Australia under a DTA, what else is required for the exemption from the FIF rules to apply?
The Australian company is required to maintain an Australian franking account and are Australian listed companies.
What is the exemption published by the Commissioner of companies exempt from the FIF rules because of being ASX-listed Australian companies?
IR 871
What is the requirement for the exemption in certain Australian unit trusts?
The trust must meet a minimum turnover of 25% or satisfy a 70% distribution test and the investors must elect to use the RWT proxy mechanism for their investment in the entity.
What are the requirements for an exemption for Australian superannuation schemes?
Generally the scheme has to be subject to strict preservation rules whereby the benefits are locked in until the member reaches retirement age.
What does an attributing interest in a FIF not include with respect to CFCs?
An attributing interest in a FIF does not include an income interest of 10% or more in a CFC.
What is the FIF exemption for an attributing interest of 10% or more in a FIF resident and subject to tax in Australia?
This exemption exists where the taxpayer is not a PIE, superannuation scheme, unit trust, life insurer or group investment fund. In addition, the FIF must not be subject to an exemption for offshore business income or a special allowance or exemption for offshore banking units.
What exemptions apply to grey list companies?
Shares in a grey list company that has migrated out of New Zealand but has retained considerable presence in New Zealand though a fixed establishment;
Shares in a grey list company that has taken over a New Zealand company and continues to have considerable presence in New Zealand;
Share or option to buy shares, in a grey list company first acquired by a person under a venture investment agreement at the same time and on the same terms as when the Venture Investment Fund acquired shares in the FIF.
Shares in a grey list company held under an employee share plan where there are restrictions on the ability of the investor to sell the shares.
What exemption exists from being required to return FIF income where there are foreign exchange controls?
There is an exemption for an interest held by a natural person in a foreign entity located in a country where exchange controls prevent the person from deriving income in New Zealand currency or realising the income in New Zealand currency.
What FIF exemptions are there for death benefits in life insurance policies purchased overseas?
There are FIF exemptions for certain death benefits in life insurance contracts purchased when the person was an overseas resident or entered into before 2 July 1992.
The main category of FIF comprise _________________, although similarly categorised is a foreign life insurance
MTG
shares in a foreign company
The main category of FIF comprise shares in a foreign company, although similarly categorised is a _______________, and an entity listed in sch 25 pt A (currently no entities listed).
MTG
foreign life insurance policy
The main category of FIF comprise shares in a foreign company, although similarly categorised is a foreign life insurance policy, and an ____________ pt A (currently no entities listed).
MTG
entity listed in sch 25
The main category of FIF comprise shares in a foreign company, although similarly categorised is a foreign life insurance policy, and an entity listed in sch 25 pt A (_______________________).
MTG
currently no entities listed
Do the FIF rules apply to units in a foreign unit trust?
Yes
Limited $50,000 minimum threshold for particular trusts
- The $50,000 threshold applies to the following small range of trusts: (a) The trust of the estate of a deceased person: the threshold applies for the first _____________ after the person’s death.
http: //www.davidco.co.nz/dl/FIFsConferencePaperApril2012.pdf
5 years
Limited $50,000 minimum threshold for particular trusts
- The $50,000 threshold applies to the following small range of trusts: (a) The trust of the estate of a deceased person: the threshold applies for the first 5 years after the _______________.
http: //www.davidco.co.nz/dl/FIFsConferencePaperApril2012.pdf
the person’s death
The $50,000 minimum threshold for FIFs takes into account _____________ if these form part of the cost of acquiring any shares.
http://www.davidco.co.nz/dl/FIFsPaper.pdf
brokerage fees
The $50,000 minimum threshold for FIFs takes into account brokerage fees if these form part of the cost of _________________.
http://www.davidco.co.nz/dl/FIFsPaper.pdf
acquiring any shares
Under section ______e and ____ 5 of the ITA, the $50,000 threshold applies if the income year begins on or before the day that is 5 years after the person’s death.
CQ 5
Under section CQ 5 1e and CQ 5 5 of the ITA, the ____________ applies if the income year begins on or before the day that is 5 years after the person’s death.
$50,000 threshold
Under section CQ 5 1e and CQ 5 5 of the ITA, the $50,000 threshold applies if the income year begins ______________________________.
on or before the day that is 5 years after the person’s death
Under section ___________, a person is treated as not deriving FIF income to the extent to which the income arises solely from receiving a death benefit under a life insurance policy.
EX 45
Under section EX 45, a person is __________________ to the extent to which the income arises solely from receiving a death benefit under a life insurance policy.
treated as not deriving FIF income
Under section EX 45, a person is treated as not deriving FIF income _________________ from receiving a death benefit under a life insurance policy.
to the extent to which the income arises solely
Under section EX 45, a person is treated as not deriving FIF income to the extent to which the income arises solely ____________________ under a life insurance policy.
from receiving a death benefit
Under section EX 45, a person is treated as not deriving FIF income to the extent to which the income arises solely from receiving a death benefit _________________.
under a life insurance policy
In what section of the ITA are non-ordinary shares defined?
EX 46
