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New Zealand law explained for everyone

Income Tax Act 2007

Income - Income from equity

CD 23: Ordering rule and slice rule

You could also call this:

“How to calculate the value of company shares for tax purposes”

When you have shares in a company, there are two ways to figure out how much those shares are worth. These are called the ‘ordering rule’ and the ‘slice rule’.

The ordering rule is used when shares are being cancelled. You can work it out by dividing the total value of all shares in that class by the number of shares being cancelled. This gives you the value of each share being cancelled.

The slice rule is used to find out the value of each share that exists. You can work it out by dividing the total value of all shares in that class by the total number of shares that exist. This gives you the value of each individual share.

In both rules, when we talk about the ‘value’ of shares, we mean something called the ‘available subscribed capital’. This is a special term used in tax law.

There’s one more important thing to know. If the company is not based in New Zealand, and you can’t get enough information to work out the real value of the shares using these rules, then the value of each share is counted as zero.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1512614.

Topics:
Money and consumer rights > Taxes
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CD 22: Returns of capital: off-market share cancellations, or

“Rules for taxing money received from company share cancellations”

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CD 23B: Returns of capital: shares repurchased under profit distribution plans, or

“Shares sold back to company under profit plans aren't considered dividends”

Part C Income
Income from equity

CD 23Ordering rule and slice rule

  1. Under the ordering rule, the available subscribed capital per share is calculated for a share using the formula—

    available subscribed capital of class ÷ shares being cancelled of class.

    Where:

    • In the formula in subsection (1),—

    • available subscribed capital of class is the available subscribed capital, of all shares of the same class as the share, at the relevant time for the calculation:
      1. shares being cancelled of class is the number of shares of the same class as the share, including the share, being cancelled at the time.

        1. Under the slice rule, the available subscribed capital per share is calculated for a share using the formula—

          available subscribed capital of class ÷ shares of class.

          Where:

          • In the formula in subsection (3),—

          • available subscribed capital of class is the available subscribed capital, of all shares of the same class as the share, at the relevant time for the calculation:
            1. shares of class is the number of shares of the same class as the share, including the share, on issue at the time.

              1. Despite subsections (2) to (4), the available subscribed capital per share calculated under the ordering rule is zero if—

              2. the company is not resident in New Zealand; and
                1. the relevant shareholder cannot obtain sufficient information to calculate the actual available subscribed capital per share using the relevant rule.

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