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Income Tax Act 2007

Income - Income from equity

CD 5: What is a transfer of company value?

You could also call this:

“A company gives something valuable to someone, which may be more than what they receive in return”

A transfer of company value happens when a company gives something of value to a person. This can be money or something else worth money. If the person also gives something to the company as part of the same deal, it’s only a transfer of company value if what the company gives is worth more.

A company can also provide value by letting someone off from paying a debt they owe. However, this doesn’t count as a transfer of company value in some cases. For example, if the debt is covered by section EW 46C(4), and the debtor is part of the same company group as the one letting them off the debt.

If a company cancels a shareholder’s shares or rights, anything the shareholder gives to the company for this is counted as having no value.

A transfer of company value doesn’t include when a company only provides services, unless it’s a close company and the services are a benefit of the company’s spending.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1512550.

Topics:

Money and consumer rights > Taxes

CD 4: Transfers of company value generally, or

“Rules for when a company gives value to shareholders”

CD 6: When is a transfer caused by a shareholding relationship?, or

“How shareholding relationships can lead to transfers of company value”

Part C Income
Income from equity

CD 5What is a transfer of company value?

A transfer of company value from a company to a person occurs when—
the company provides money or money’s worth to the person; and
if the person provides any money or money’s worth to the company under the same arrangement, the market value of what the company provides is more than the market value of what the person provides.

A company (the creditor) provides money’s worth to a person (the debtor) if the debtor is released from an obligation to pay money to the creditor, either by agreement or by operation of law, except to the extent to which—
the obligation the debtor is released from is an amount of debt to which section EW 46C(4) (Consideration when debt remitted within economic group) applies; and
at the time the debtor is released, the debtor is a company that is a member of the same wholly-owned group as the creditor, and the debtor is described in section EW 46C(1)(a) or (b).

The market value of any transfer from the shareholder to the company on the cancellation of a share or the shareholder’s rights as a shareholder is zero.
Despite subsection (1), a transfer of company value does not occur to the extent to which the money’s worth provided by the company is only the provision of services.
Subsection (3) does not apply to the provision of services by a company that is a close company, if the provision is the benefit of expenditure of the company.

Compare

2004 No 35 s CD 4

Notes

Section CD 5 heading: amended, on 23 March 2020, by section 89(1) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section CD 5(1): amended, on 23 March 2020, by section 89(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section CD 5(2): replaced (with effect on 1 April 2008), on 30 March 2017, by section 16(1) (and see section 16(3)) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section CD 5(2)(a): amended (with effect on 1 April 2008), on 30 March 2022, by section 51 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section CD 5(2)(a): amended (with effect on 1 April 2008), on 18 March 2019, by section 129(1) (and see section 129(2) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section CD 5(2B) heading: inserted (with effect on 1 April 2008), on 6 October 2009, by section 12(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CD 5(2B): inserted (with effect on 1 April 2008), on 6 October 2009, by section 12(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CD 5(2B): amended, on 29 March 2018 (with effect on 1 April 2008 and applying for the 2008–09 and later income years), by section 9(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section CD 5(3): amended, on 23 March 2020, by section 89(3) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section CD 5 list of defined terms market value: inserted (with effect on 1 April 2008), on 6 October 2009, by section 12(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CD 5 list of defined terms share: inserted (with effect on 1 April 2008), on 6 October 2009, by section 12(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CD 5 list of defined terms shareholder: inserted (with effect on 1 April 2008), on 6 October 2009, by section 12(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CD 5 list of defined terms transfer of company value: inserted, on 23 March 2020, by section 89(4) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section CD 5 list of defined terms transfer of value: repealed, on 23 March 2020, by section 89(4) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section CD 5 list of defined terms wholly-owned group of companies: inserted (with effect on 1 April 2008), on 30 March 2017, by section 16(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).