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Income Tax Act 2007

Income - Income from equity

CD 39: Calculation of amount of dividend when property made available

You could also call this:

“How to calculate dividends when a company lets you use its property”

When a company makes property available to you, it can be considered a dividend. The amount of this dividend is calculated every three months. You’re treated as receiving this dividend six months after the end of the company’s financial year, unless the company tells you about it earlier.

If the property isn’t a loan, the dividend amount is worked out using the same rules as fringe benefits. This means it’s treated like a benefit an employer gives to an employee, even though it might not actually be one.

If the property is a loan, the dividend is the difference between the interest calculated using a special rate (called the benchmark rate) and the actual interest you’re paying. The company can choose a different way to calculate this if they want.

The benchmark rate depends on what currency the loan is in. For New Zealand dollar loans, it’s usually a rate set by the government. For other currencies, it’s either a rate set by the tax department or a fair market rate.

Sometimes, the company can choose to use an average loan balance for the year instead of working it out day by day. This is only allowed in certain situations and if it doesn’t change the dividend amount too much.

The company needs to tell the tax department about some of these choices when they file their tax return.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1512666.

Topics:
Money and consumer rights > Taxes
Business > Industry rules
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Part C Income
Income from equity

CD 39Calculation of amount of dividend when property made available

  1. This section applies to determine the amount of a dividend that arises under section CD 3 because a company makes property available to a person.

  2. The amount of the dividend is calculated for each quarter during which the property is made available.

  3. The amount of the dividend calculated for a quarter is treated as being paid by the company to the person and as being derived by the person 6 months after the end of the company’s income year. However, if the company gives notice to the shareholder on an earlier date of the amount of the dividend for that quarter, the amount is treated as being paid and derived on that earlier date instead.

  4. Unless the property made available is a loan, the amount of the dividend for each quarter is the value of the fringe benefit for that quarter calculated under the fringe benefit tax (FBT) rules as if—

  5. making the property available were the provision of a fringe benefit by the company to an employee in relation to employment, despite anything in sections CX 6 to CX 38 (which relate to fringe benefits); and
    1. the company were not to choose to pay fringe benefit tax on an income year basis under section RD 60 (Close company option).

      1. If the property made available is a loan, the amount of the dividend for each quarter is the excess, if any, of interest, calculated for the quarter on the basis of the daily balance of the loan and the benchmark rate specified in subsections (6) to (8), over the actual amount of interest accruing on the loan in the quarter. However, the company may choose instead to calculate the dividend as the excess of the benchmark interest rate amount over the amount of income accruing to the company in the quarter calculated under the yield to maturity method.

      2. For the purposes of subsection (5), the benchmark rate of interest is the prescribed rate of interest if—

      3. all amounts payable to the company for the loan are expressed in New Zealand dollars; and
        1. either the borrower is not a company or, if the borrower is another company, the company making the loan notifies the Commissioner that this subsection is to apply to the loan and the quarter.

          1. For the purposes of subsection (5), the benchmark rate is the rate set by the Commissioner if—

          2. all amounts payable to the company in relation to the loan are payable in a single currency other than New Zealand dollars; and
            1. the Commissioner has set a benchmark rate for that currency and the quarter; and
              1. either the borrower is not a company or, if the borrower is another company, the company making the loan notifies the Commissioner that this subsection is to apply to the loan and the quarter.

                1. For the purposes of subsection (5), if neither subsection (6) nor (7) applies, the benchmark rate of interest is a market rate determined at the end of the quarter for a loan made on the same terms between persons at arm’s length.

                2. For the purposes of subsection (5), in determining the daily balance of a loan during a tax year, an amount repaid during the tax year is treated as having been applied in repayment of the loan at the start of the company’s tax year or, if later, the day the loan was made, if—

                3. the amount is repaid by applying any salary, wages, extra pay, dividends, or interest payable by the company to the borrower; and
                  1. the amount payable by the company is income of the borrower in the tax year or an earlier tax year; and
                    1. the amount payable by the company is—
                      1. payable without any amount of tax being withheld and paid under the PAYE rules, the RWT rules, or the NRWT rules:
                        1. a fully imputed dividend.

                        2. Subject to subsection (9), for the purposes of subsection (5), the daily balance of the loan for a tax year is treated as being equal to the notional balance chosen under subsection (11) by the company making the loan if—

                        3. the borrower is a company; and
                          1. the loan is a variable principal debt instrument; and
                            1. the company making the loan notifies the Commissioner that this subsection applies for the loan and the tax year; and
                              1. the amount of the dividend calculated as a result for the loan, the borrower, and the tax year is no more than 30% greater or less than the amount that would be calculated if this section did not apply.

                                1. The notional balance referred to in subsection (10) is whichever of the following is chosen by the company making the loan and notified to the Commissioner:

                                2. the average of the outstanding balances of the loan at the end of each month in the company’s tax year:
                                  1. the average of—
                                    1. the outstanding balance of the loan at the start of the tax year or the first time during the tax year at which the loan exists, whichever is later; and
                                      1. the outstanding balance of the loan at the end of the tax year or the last time during the tax year at which the loan exists, whichever is earlier.

                                      2. Reference in this section to a company notifying the Commissioner is a reference to—

                                      3. a notice given to the Commissioner with the company’s return of income for the relevant tax year; or
                                        1. if no return is required, a notice given by the date on which a return would be required to be filed for the tax year if a return had been required.

                                          1. Repealed

                                          2. Repealed
                                          Compare
                                          Notes
                                          • Section CD 39(9)(c): replaced (with effect on 1 April 2008), on , by section 20(1) (and see section 20(3)) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                                          • Section CD 39(9)(c)(ii): amended, on (with effect on 1 April 2008 and applying for the 2008–09 and later income years), by section 14(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                                          • Section CD 39(13) heading: repealed, on , pursuant to section 74(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                                          • Section CD 39(13): repealed, on , by section 74(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                                          • Section CD 39(14) heading: repealed, on , pursuant to section 74(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                                          • Section CD 39(14): repealed, on , by section 74(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                                          • Section CD 39 list of defined terms attributed repatriation: repealed, on , by section 74(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                                          • Section CD 39 list of defined terms fully-imputed dividend: repealed, on (with effect on 1 April 2008 and applying for the 2008–09 and later income years), by section 14(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                                          • Section CD 39 list of defined terms fully imputed: inserted, on (with effect on 1 April 2008 and applying for the 2008–09 and later income years), by section 14(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                                          • Section CD 39 list of defined terms New Zealand repatriation amount: repealed, on , by section 74(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).