Plain language law

New Zealand law explained for everyone

Income Tax Act 2007

Income - Income from equity

CD 53: Prevention of double taxation of share cancellation dividends

You could also call this:

“Rules to avoid being taxed twice when a company buys back your shares”

This law helps prevent you from being taxed twice on money you get when a company cancels your shares. Here’s how it works:

If you get money from a company cancelling your shares, and this money is considered income under other tax rules, you can reduce the amount of income you report. You can reduce it by the amount of any dividend you received from the share cancellation, but not below zero. This reduction doesn’t include any extra tax credits attached to the dividend.

You can’t reduce your income if the dividend is already tax-free under sections CW 9 and CW 10 of the law.

Even if the money you get isn’t officially called a dividend, it might still be considered income under this rule.

If you’re a business and you hold shares as part of your business, there’s a special rule in section FA 3 that might change how this law applies to you.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1512767.

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

CD 53Prevention of double taxation of share cancellation dividends

  1. This section applies when—

  2. a person derives an amount from the cancellation of a share in a company; and
    1. the amount is income of the person under 1 of the following provisions (the other rules):
      1. section CB 1 (Amounts derived from business); or
        1. section CB 3 (Profit-making undertaking or scheme); or
          1. section CB 4 (Personal property acquired for purpose of disposal); or
            1. section CB 5 (Business of dealing in personal property); or
              1. any other provision of this Act outside this subpart.

              2. For the purposes of the other rules, the amount derived by the person from the company is treated as if it were reduced, but not below zero, by the amount of any dividend derived by the person in relation to the cancellation, excluding any attached imputation credit.

              3. Subsection (2) does not apply to the extent to which the dividend is exempt income of the person under sections CW 9 and CW 10 (which relate to income from equity).

              4. Repealed

              5. Repealed

              6. Subject to subsection (2), the amount derived by the person from the company may be income of the person despite the fact that the amount is excluded from being a dividend by any of sections CD 22 to CD 27.

              7. This section is overridden by section FA 3 (Recharacterisation of certain dividends: recovery of cost of shares held on revenue account).

              Compare
              Notes
              • Section CD 53(2): amended, on , by section 24 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
              • Section CD 53(3) heading: substituted (with effect on 30 June 2009), on , by section 23(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
              • Section CD 53(3): substituted (with effect on 30 June 2009), on , by section 23(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
              • Section CD 53(3): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 6(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
              • Section CD 53(4) heading: repealed (with effect on 30 June 2009), on , pursuant to section 23(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
              • Section CD 53(4): repealed (with effect on 30 June 2009), on , by section 23(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
              • Section CD 53(5) heading: repealed (with effect on 30 June 2009), on , pursuant to section 23(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
              • Section CD 53(5): repealed (with effect on 30 June 2009), on , by section 23(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
              • Section CD 53(5)(b): amended, on , by section 562 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
              • Section CD 53(5)(b): amended, on , by section 318 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
              • Section CD 53 list of defined terms FDP: repealed (with effect on 30 June 2009), on , by section 23(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
              • Section CD 53 list of defined terms FDP credit: repealed (with effect on 30 June 2009), on , by section 23(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).