Foreign Equity investments

Question 1

Tax For controlled foreign companies requirements

Answer 1

• Needs to be a non-resident company
• 5 or less NZ residents have more than 50% control over the company OR
• A single NZ resident has equal to or more than 40% interest non-resident has equal or more control interest OR
• 5 or fewer NZ resident have the ability to vote (Some control over shareholders) e.g. don’t actually own the shares but the person who does own the share, dooes what it tells them

Question 2

What do CFC do?

Answer 2

The Attribute income of the foreign company to the New Zealand Shareholder
But We don’t attribute all the income, we attribute “Passive income”
e.g. Interest, and dividends

Question 3

Exemptions to CFC

Answer 3

• Australian companies are not subject to CFC rules, only pay tax on dividends
• Passive income is 5% less than YOUR total gross income – discouraging people to invest overseas

Question 4

A Person has FIF income if:

Answer 4

• Have and attributing interest in a FIF; and exemption does not apply; and if a natural person, total cost all attributing FIF interests > $50,000

Question 5

What is an attributing interest:

Answer 5

• If a person has shares in a foreign company; or
• Interest in FIF superannuation interest as beneficiary/member; or
• Right to benefit form a life insurance policy issued by FIF

Question 6

Main Exemptions for shares in a foreign company:

Answer 6

• Australian listed companies; and
• CFC interest >10% not subject to the FIF regime

Question 7

FDR formula

Answer 7

=(0.05 × Opening Value)+Quick Sales Adjustment

Question 8

Quick sale adjustment is the lesser of:

Answer 8

• Peak Holding method
• Quick sale Gain amount

Question 9

Peak holding method Formula

Answer 9

0.05 × Peak Holding Differential ×Average Cost

Question 10

Peak holding differential

Answer 10

Lesser of:
Maximum holding during the year - shares at the start
maximum holding during the year - shares at end

Question 11

Quick sale gain amount Formula

Answer 11

Gain-(interest × Average Cost)

• Gain is what you get for selling them (not the actual gain) plus a dividend

Question 12

Comparative value method formula

Answer 12

(Closing Value+Gains)-(Opening Value+Costs)

Question 13

If you are choosing to use CV…

Answer 13

…you cant have a loss

Question 14

If your being told to use CV…

Answer 14

You can have a loss