Plain language law

New Zealand law explained for everyone

Income Tax Act 2007

Income - Income from equity

CD 42: Adjustment if additional consideration paid

You could also call this:

“How to handle tax on dividends when extra money is paid or received after a deal”

If you get a dividend from a company because there was a difference between what something was worth and what was paid for it, you can ignore this dividend for tax purposes if certain conditions are met.

The company must have tried to figure out the correct value of the thing at the time of the deal. They need to have taken reasonable steps to do this.

After the deal, if you received the dividend, you must have either paid the company more money to match the actual value of the thing, or given back any extra money the company paid.

The company and you must have fixed your accounts to show this extra payment or refund.

If all these things happen, you can ignore the dividend when dealing with your taxes.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1512672.

Topics:
Money and consumer rights > Taxes
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CD 41: Adjustment if amount repaid later, or

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CD 43: Available subscribed capital (ASC) amount, or

“How a company calculates the amount of capital invested by shareholders”

Part C Income
Income from equity

CD 42Adjustment if additional consideration paid

  1. If a dividend from a company arises because of a difference between the market value of property provided by or to the company and the consideration paid for it, the dividend is disregarded for the purposes of this Act if the conditions in subsections (2) to (4) are met.

  2. The consideration paid must have been an amount that the company considered was the market value, having taken reasonable steps at the time of the transaction to ascertain a market value.

  3. The recipient of the dividend must have later paid to the company—

  4. sufficient additional consideration to reflect the actual market value of the property at the time of the transaction; or
    1. a refund of any excess consideration paid by the company.

      1. Any necessary adjustments must have been made to the accounts of the company and the recipient for the additional consideration or refund.

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