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Income Tax Act 2007

Income - Income from equity

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

You could also call this:

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

A transfer of company value from a company to a person happens because of a shareholding relationship when the person receiving the value either owns shares in the company or is connected to a shareholder. The company makes this transfer because of that shareholding.

You can tell if a transfer is caused by a shareholding if the deal’s terms are different from what the company would offer if there was no shareholding involved.

There are some exceptions to this rule. If a statutory producer board gives cash to a member, it’s not because of a shareholding if it’s a deduction under section DV 19 or another part of this Act, and the board doesn’t choose to treat it as a dividend under section OB 73.

Similarly, if a co-operative company gives cash to a shareholder, it’s not because of a shareholding if it’s a deduction under section DV 19 or another part of this Act, and the company doesn’t choose to treat it as a dividend under section OB 82.

For these exceptions, section DV 19 is not overruled by section DV 18.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1512553.

Topics:
Money and consumer rights > Taxes
Business > Industry rules
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CD 5: What is a transfer of company value?, or

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

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CD 7: Bonus issues in lieu of dividend, or

“Shares offered instead of cash dividends are still taxed as dividends”

Part C Income
Income from equity

CD 6When is a transfer caused by a shareholding relationship?

  1. A transfer of company value from a company to a person (the recipient) is caused by a shareholding in the company if—

  2. the recipient at any relevant time—
    1. holds shares in the company; or
      1. is associated with a shareholder; and
        2. the company makes the transfer because of that shareholding of the relevant shareholder.

          1. One indication that a transfer is caused by a shareholding is if the terms of the arrangement that results in the transfer are different from the terms on which the company would enter into a similar arrangement if no shareholding were involved.

          2. Despite subsection (1), a transfer of company value by a statutory producer board to a member is not caused by a shareholding if—

          3. the transfer is a cash distribution; and
            1. the distribution is a deduction under section DV 19 (Association rebates) or any other provision of this Act; and
              1. the board does not choose to treat the distribution as a dividend under section OB 73 (Statutory producer boards attaching imputation credits to cash distributions).

                1. Despite subsection (1), a transfer of company value by a co-operative company to a shareholder is not caused by a shareholding if—

                2. the transfer is a cash distribution; and
                  1. the distribution is a deduction under section DV 19 or any other provision of this Act; and
                    1. the company does not choose to treat the distribution as a dividend under section OB 82 (When and how co-operative company makes election).

                      1. For the purposes of subsections (3)(b) and (4)(b), section DV 19 is not overridden by section DV 18 (Statutory producer boards and co-operative companies).

                      Compare
                      Notes
                      • Section CD 6(1): amended, on , by section 90(1) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                      • Section CD 6(1)(a)(ii): amended, on (applying for the 2010–11 and later income years), by section 13(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                      • Section CD 6(1)(a)(iii): repealed, on (applying for the 2010–11 and later income years), by section 13(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                      • Section CD 6(3): amended, on , by section 90(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                      • Section CD 6(3)(b): amended (with effect on 1 April 2008), on , by section 130(1) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
                      • Section CD 6(4): amended, on , by section 90(3) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                      • Section CD 6(4)(b): amended (with effect on 1 April 2008), on , by section 130(2) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
                      • Section CD 6(5) heading: amended (with effect on 1 April 2008), on , by section 130(3)(a) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
                      • Section CD 6(5): amended (with effect on 1 April 2008), on , by section 130(3)(b) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
                      • Section CD 6 list of defined terms transfer of company value: inserted, on , by section 90(4) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                      • Section CD 6 list of defined terms transfer of value: repealed, on , by section 90(4) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).