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Income Tax Act 2007

Income - Exempt income

CW 10: Dividend within New Zealand wholly-owned group

You could also call this:

“Tax-free dividends between fully-owned New Zealand companies”

You can get income from dividends that you don’t have to pay tax on. This is called exempt income. Here’s when it happens:

The company getting the dividend can’t be a foreign company, or it must be a New Zealand company that’s treated as not living in New Zealand under a special agreement.

The company paying the dividend must be part of the same group of companies as the one getting it. They must be completely owned by the same people.

The company paying the dividend can’t be a foreign company or one that only makes exempt income.

There are some extra rules about friendly societies and trusts that manage funds for sickness, accidents, or death benefits. These can’t get exempt dividends from certain insurance companies they control.

If the company getting the dividend is treated as not living in New Zealand, there are more rules. For example, it might need to be treated this way under an agreement with Australia, or all its shareholders would need to be free from New Zealand tax on dividends from it.

Sometimes, even if these extra rules aren’t met, the dividend can still be exempt if it’s fully imputed (which means tax has already been paid on it).

This rule is more important than section HC 38, which is about income for beneficiaries of certain close companies.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1513148.

Topics:
Money and consumer rights > Taxes
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CW 9: Dividend derived from foreign company, or

“Tax exemption for NZ companies receiving foreign dividends, with exceptions”

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CW 10B: Dividends derived by council-controlled organisation holding companies, or

“Tax-free dividends for council-controlled companies under specific conditions”

Part C Income
Exempt income

CW 10Dividend within New Zealand wholly-owned group

  1. A dividend is exempt income if—

  2. it is derived by a company (the recipient) that is—
    1. not a foreign company; or
      1. a New Zealand resident company that is treated under a double tax agreement as not being resident in New Zealand; and
      2. it is derived from a company (the payer) that is part of the same wholly-owned group of companies as the recipient at the time the dividend is derived; and
        1. the payer is not a foreign company; and
          1. the payer is not a company that can derive only exempt income; and
            1. the requirements of subsections (5) and (6) are met; and
              1. for a dividend derived by a company described in paragraph (a)(ii), 1 or more of the following apply:
                1. the recipient is treated as not being resident in New Zealand under a double tax agreement between New Zealand and Australia:
                  1. immediately after the dividend is derived by the recipient, the recipient has only shareholders that would have full relief from New Zealand tax under a double tax agreement on a dividend paid to them at that time by the recipient if the recipient were treated as being a company that is not a foreign company:
                    1. the total amount of dividends derived by the recipient from the payer is less than $1 million in each 12-month period that includes the date on which the dividend is derived by the recipient:
                      1. the recipient becomes a company that is not a foreign company within 2 years of the date on which it derived the dividend and does not itself pay a dividend in the period that starts on the date on which it derived the dividend and ends on the date on which it becomes a company that is not a foreign company.

                      2. A dividend is exempt income to the extent to which it is fully imputed if—

                      3. it is derived by a company described in subsection (1)(a)(ii); and
                        1. the requirements of subsection (1)(b) to (e) are met; and
                          1. the requirement of subsection (1)(f) is not met.

                            1. Repealed

                            2. Repealed

                            3. Repealed

                            4. The dividend must not be derived by a friendly society from a company registered as an insurer under the Accident Insurance Act 1998 that is under the control of the society.

                            5. The dividend must not be derived by a trustee in trust for a sickness, accident, or death benefit fund from a company registered as an insurer under the Accident Insurance Act 1998 that is under the control of the trustee.

                            6. This section overrides section HC 38 (Beneficiary income of certain close companies).

                            Compare
                            Notes
                            • Section CW 10(1) heading: replaced (with effect on 30 August 2022), on , by section 23(1) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                            • Section CW 10(1)(a): replaced (with effect on 30 August 2022), on , by section 23(2) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                            • Section CW 10(1)(e): amended (with effect on 30 August 2022), on , by section 23(3) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                            • Section CW 10(1)(e): amended, on , by section 55(1) (and see section 55(3) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
                            • Section CW 10(1)(f): inserted (with effect on 30 August 2022), on , by section 23(4) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                            • Section CW 10(1B) heading: inserted (with effect on 30 August 2022), on , by section 23(5) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                            • Section CW 10(1B): inserted (with effect on 30 August 2022), on , by section 23(5) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                            • Section CW 10(2) heading: repealed, on , pursuant to section 8(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
                            • Section CW 10(2): repealed, on , by section 8(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
                            • Section CW 10(3) heading: repealed, on , pursuant to section 55(2) (and see section 55(3) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
                            • Section CW 10(3): repealed, on , by section 55(2) (and see section 55(3) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
                            • Section CW 10(4) heading: repealed (with effect on 1 April 2015), on , pursuant to section 31 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                            • Section CW 10(4): repealed (with effect on 1 April 2015), on , by section 31 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                            • Section CW 10(7) heading: inserted, on , by section 19(1) (and see section 19(2) for application) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
                            • Section CW 10(7): inserted, on , by section 19(1) (and see section 19(2) for application) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
                            • Section CW 10 list of defined terms amount: inserted (with effect on 30 August 2022), on , by section 23(6) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                            • Section CW 10 list of defined terms deduction: repealed, on , by section 33 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                            • Section CW 10 list of defined terms double tax agreement: inserted (with effect on 30 August 2022), on , by section 23(6) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                            • Section CW 10 list of defined terms fully imputed: inserted (with effect on 30 August 2022), on , by section 23(6) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                            • Section CW 10 list of defined terms income year: repealed, on , by section 33 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                            • Section CW 10 list of defined terms net income: repealed, on , by section 33 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                            • Section CW 10 list of defined terms New Zealand resident: inserted (with effect on 30 August 2022), on , by section 23(6) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                            • Section CW 10 list of defined terms New Zealand tax: inserted (with effect on 30 August 2022), on , by section 23(6) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                            • Section CW 10 list of defined terms shareholder: inserted (with effect on 30 August 2022), on , by section 23(6) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                            • Section CW 10 list of defined terms tax avoidance arrangement: repealed, on , by section 33 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).