myIR, payments and more
Changes to the controlled foreign company (CFC) rules
New CFC rules apply from the:
- beginning of the 2010 income year for all entities with a balance date between 30 June and 30 September (inclusive), and
- 2011 income year for all other entities.
New Zealand tax residents (other than transitional residents)
|Generally if you have income interests of 10% or greater in CFCs that ...||then you ...|
|are active businesses||are not taxed on the CFCs' income or losses except for income from providing certain personal services.|
|are not active businesses||
are taxed on your proportionate share of the CFC's passive income and losses only.
Passive income (see "Note" below) or loss derived or incurred by the foreign company is treated as being derived or incurred by the New Zealand resident shareholders. Any passive losses are ring-fenced to the jurisdiction of the relevant CFC, meaning they can only be offset against CFC income from the same jurisdiction.
Passive income is defined in legislation as the "attributable CFC amount".
CFCs must be tested to determine if they are active businesses ("non-attributing active CFCs"). A CFC will be a non-attributing active CFC during an accounting period if its passive income amounts to less than 5% of its gross income.
Australian CFCs that meet certain requirements ("non-attributing Australian CFCs") receive a special exemption from the CFC rules.
Find out about these rules in our Policy Advice Division's Special report on the new rules for taxing controlled foreign companies and foreign dividends, October 2009.
In 2011 and 2014 some minor changes were made to the CFC rules. Read about these changes in the Tax Information Bulletin (TIB) Vol 24, No 6, on pages 45 to 51, and Vol 26, No 7, on pages 103 to 107.
New Zealand legislation
Income Tax Act 2007
- CQ 2
- DN 2
- EX 1-27