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Telecommunications Act 2001

Structural separation of Telecom - Taxation consequences of structural separation

69XP: Tax effect of distribution of ChorusCo shares

You could also call this:

"Getting ChorusCo shares is tax-free"

Illustration for Telecommunications Act 2001

When ChorusCo shares are given out, you do not have to pay tax on them. This is because the Income Tax Act 2007 does not consider this as income. You can find more information about this in the Income Tax Act 2007. If you get ChorusCo shares, you are not getting a gift that you have to pay tax on. This is according to the Estate and Gift Duties Act 1968. The value of the shares is used to work out the tax. The Income Tax Act 2007 has rules about how to work out the value of the shares. These rules use terms like market capitalisation, which means the total value of all the shares. You can find more information about market capitalisation in section 46 of the Telecommunications (TSO, Broadband, and Other Matters) Amendment Act 2011. Some words in this section have special meanings, like available subscribed capital and dividend. You can find these meanings in the Income Tax Act 2007. These meanings are important for working out the tax.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM4187719.

Topics:
Money and consumer rights > Taxes
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Part 2AStructural separation of Telecom
Taxation consequences of structural separation

69XPTax effect of distribution of ChorusCo shares

  1. For the purposes of the Income Tax Act 2007, the following transactions do not give rise to, and are ignored for the purposes of calculating, the available subscribed capital of a Chorus company or a Telecom company:

  2. the vesting of the designated assets and liabilities:
    1. the demerger distribution:
      1. a transaction necessary for carrying into effect the vesting of the designated assets and liabilities, or the demerger distribution, if, for that transaction, there is no party other than Chorus companies and Telecom companies.

        1. The demerger distribution on the appointed day—

        2. is not a dividend or other kind of assessable income for the purposes of the Income Tax Act 2007:
          1. is not a dutiable gift for the purposes of the Estate and Gift Duties Act 1968:
            1. is, for any relevant Telecom company, a disposition for the cost price of the share, for the purposes of the Income Tax Act 2007.

              1. For the purposes of the Income Tax Act 2007, a person who receives a demerger distribution by virtue of holding a Telecom Corporation of New Zealand Limited share or shares is treated as—

              2. acquiring the relevant ChorusCo share or shares at the same time and for the same purposes as the Telecom Corporation of New Zealand Limited share or shares that give rise to that person's entitlement to the demerger distribution:
                1. having paid the amount given by subsection (4) for the acquisition of the ChorusCo share or shares:
                  1. having paid the amount given by subsection (5) for the acquisition of the Telecom Corporation of New Zealand Limited share or shares.

                    1. For the purposes of subsection (3)(b), the amount paid for the acquisition is calculated using the following formula:

                      Where:

                      • For the purposes of subsection (3)(c), the amount paid for the acquisition is calculated using the following formula:

                        Where:

                        • In the formulas in subsections (4) and (5),—

                        • pre-calculation amount paid is the person's expenditure or loss incurred in acquiring the relevant Telecom Corporation of New Zealand Limited share or shares, ignoring this section:
                          1. Chorus mv is the market capitalisation of ChorusCo calculated in the manner prescribed in a proposal approved by Order in Council under section 46 of the Telecommunications (TSO, Broadband, and Other Matters) Amendment Act 2011, or, if none is prescribed, the number of ChorusCo shares on issue immediately following the demerger distribution multiplied by the volume weighted average price of ChorusCo shares as traded on the NZSX over the first 5 trading days commencing on the date of listing of ChorusCo:
                            1. Telecom mv is the market capitalisation of Telecom Corporation of New Zealand Limited calculated in the manner prescribed in a proposal approved by Order in Council under section 46 of the Telecommunications (TSO, Broadband, and Other Matters) Amendment Act 2011, or, if none is prescribed, the number of Telecom Corporation of New Zealand Limited shares on issue immediately following the demerger distribution multiplied by the volume weighted average price of Telecom Corporation of New Zealand Limited shares as traded on the NZSX over the first 5 trading days commencing on the date of listing of ChorusCo:
                              1. combined mv is the total market capitalisation of ChorusCo and of Telecom Corporation of New Zealand Limited calculated in the manner prescribed in a proposal approved by Order in Council under section 46 of the Telecommunications (TSO, Broadband, and Other Matters) Amendment Act 2011, or, if none is prescribed, the total of the market capitalisation of ChorusCo and of Telecom Corporation of New Zealand Limited determined in accordance with paragraphs (b) and (c).

                                1. Subsection (8) applies where—

                                2. an arrangement entered into on or before the appointed day would, but for the demerger distribution, be a returning share transfer or share-lending arrangement in respect of which the original share is a Telecom Corporation of New Zealand Limited share; and
                                  1. if, under the relevant arrangement in respect of the Telecom Corporation of New Zealand Limited share, the share user is required to transfer a Telecom Corporation of New Zealand Limited share or shares and a ChorusCo share or shares to the share supplier.

                                    1. If subsection (7) applies,—

                                    2. the relevant ChorusCo share or shares are treated as part of the relevant Telecom Corporation of New Zealand Limited share or shares for the purposes of the definitions of identical share, original share, returning share transfer, and share-lending arrangement in the Income Tax Act 2007:
                                      1. subsection (3) applies to the share supplier as if the share supplier were the person referred to in that subsection.

                                        1. In this section, available subscribed capital, dividend, identical share, original share, returning share transfer, share-lending arrangement, share supplier, and share user have the same meanings as in the Income Tax Act 2007.

                                        Notes
                                        • Section 69XP: inserted, on (being the date of separation day, and an Order in Council (SR 2011/302) having been made under section 36), by section 51 of the Telecommunications (TSO, Broadband, and Other Matters) Amendment Act 2011 (2011 No 27).