Glossary of Terms

Accounting year - the 12-month period ending with the taxpayer's balance date.

Associated persons - individuals and companies associated within the meaning of section 8 of the Income Tax Act.

Branch-equivalent basis - the method for determining a taxpayer's income from an interest in a non-resident company or trust where the taxpayer has sufficient information to calculate the income of the company or trust in accordance with New Zealand tax rules.

Comparative-value basis - the method for determining the annual increase or decrease in the market value of an interest in a non-resident company or trust.

Dividend Adjustment Balance (DAB) - the amount of non-portfolio dividends that will be subject to the post facto adjustment.

Distribution from a non-resident trust - any amount which vests indefeasibly in a beneficiary.

Imputation Credit Account - an account to be established by companies to record the amount of imputation credits available for allocation to shareholders.

Imputed return method - the determination of the market value of an interest in a non-resident company or trust assuming that the value grew at a rate equal to a prescribed interest rate.

Income Adjustment Balance (IAB) - that part of the accrued gain in the value of an interest that will be subject to the post facto adjustment.

Income year - the year ending 31 March. For example, the year ending 31 March 1988 is referred to as the 1988 income year. Income year is defined in section 2 of the Income Tax Act 1976.

Interest in a non-resident trust - the proportion of the market value of the net assets of the trust attributable to a resident settlor's contribution.

Interest in a non-resident company - an entitlement to, or entitlement to acquire, rights to dividends or voting power in relation to distributions and changes to a company's constitutional rules.

Market value - the highest price obtainable in a transaction between non-associated persons who are under no compulsion to buy or sell and who have knowledge of the relevant facts.

Non-Resident company - a company this is not subject to tax in New Zealand on its foreign income.

Non-resident entity - a company or trust resident outside New Zealand.

Non-resident trust - a trust which has no trustees resident in New Zealand at the end of its accounting year.

Proceeds of disposition - all amounts received or receivable on the disposition of an interest in a non-resident company or trust.

Portfolio dividends - dividends received by a company from another company in which the first company owns less than 10 percent of the paid-up share capital.

Post facto adjustment - an adjustment to a taxpayer's tax for previous years during which an interest in a non-resident company was owned where the proceeds of disposition of the interest or its market value significantly exceeded the last reported value of the interest.

Post Facto Adjustment Balance (PFAB) - the amount of accrued gain in the value of an interest in a non-resident entity and the amount of non-portfolio dividends that will be subject to the post facto adjustment. (The post facto adjustment balance is the sum of the dividend adjustment balance and the income adjustment balance.)

Resident settlor - any person resident in New Zealand who has contributed property, directly or indirectly, to a non-resident trust.

Tax avoidance - the minimisation of tax liability by legal means. The term describes practices which are contrary to the intent of, and exploit loopholes in, the tax law.

Tax base - the base on which tax is levied, which in New Zealand includes income and expenditure.

Tax deferral - the practice of delaying the payment of tax without penalty. For example, where income is taxed as received and not as it accrues, deferral is possible. A tax system which allows deferral provides certain taxpayers, in effect, with an interest-free loan.

Tax haven - a country which imposes little or no tax, or is otherwise attractive for tax reasons, relative to another country.