IRD has released technical decision summary 23/12 which states that company and trust applicants can change their FIF calculation methods for the relevant income years. Applicants will be able to choose whether they want to use the fair dividend rate (FDR) calculation method and the comparative value method will be available to trusts.

Reasons for this Change

Issue 1: Changing FIF Calculation Method

Under the previous rules, once a particular calculation method has been decided upon and put into use to calculate FIF method, the same method must be used for the next period unless they are allowed to change under subsection 2 to 9 pf the TAA. The tax counsel office concluded that so long as applicants provide give reasons for the change, comply with the commissioners notice requirements and notice is provided before the end of the first income year for accounting period for which the change is to take place, applicants will be able to change their calculation methods.

Issue 2: Availability of FDR Method

Section EX 46 is the main provision for the availability of different calculation methods. Under s EX 46(8), a person is not able to use the FDR method for an attributing interest in a FIF that is a share in a foreign company if:

• the share is a non-ordinary share
• the person chooses to use the CV method for another attributing interest that is a share in a foreign company for which the person would be allowed to use the FDR method

Applicants can elect to use the FDR method in determining their income under FIF rules given that all attributing interests are shares in foreign companies, and the shares are not non-ordinary shares.

Issue 3: Availability of CV Method

You can use the CV method for an attributing interest in a FIF that is a share in a foreign company for an income year given they meet the following criteria.

• The Trust is a New Zealand complying trust and has always been complying trust
• The Trust has no gifting settlor who is not a natural person or deceased person.
• Since the Trust was established, it has been for the benefit of natural persons for whom the gifting settlors of the trust have natural love and affection.
• The Trust is not superannuation scheme.

If the Trust uses the CV method to calculate its FIF income in the relevant income years, the FIF income will be calculated in accordance with the following formula:

(closing value + gains) − (opening value + costs)