Plain language law

New Zealand law explained for everyone

 Plain Language Law homepage
Back to
CD 23B: Returns of capital: shares repurchased under profit distribution plans
or “Shares sold back to company under profit plans aren't considered dividends”
You could also call this:

“Rules for when a company buys back its own shares from the market”

When a company buys back its own shares from the market, the money they pay isn’t usually considered a dividend. However, there’s an exception to this rule.

If the company pays more than the available subscribed capital per share (which is calculated using a special ordering rule), the extra amount is treated as a dividend, not as a return of capital. This applies when you’re looking at section CD 40, section CD 43(2)(c), and section GA 1(4) of the law.

Also, this extra amount creates something called an imputation credit account debit under section OB 42. This is a special accounting entry that companies need to make.

This text is automatically generated. It might be out of date or be missing some parts. Find out more about how we do this.

Next up: CD 25: Treasury stock acquisitions

or “Rules for companies buying and holding their own shares”
Next

Part C Income
Income from equity

CD 24Returns of capital: on-market share cancellations

  1. An amount paid by a company in acquiring any of its shares in an on-market cancellation is not a dividend.

  2. Despite subsection (1), any excess of the amount paid over the available subscribed capital per share calculated under the ordering rule—

  3. is treated as a dividend and not a return of capital when applying—
    1. section CD 40:
      1. section CD 43(2)(c):
        1. section GA 1(4) (Commissioner’s power to adjust); and
        2. gives rise to an imputation credit account debit under section OB 42 (ICA on-market cancellation).

          Compare
          Notes
          • Section CD 24(2)(a)(i): amended (with effect on 1 April 2008), on (applying for the 2008–09 and later income years), by section 28(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).