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Income Tax Act 2007

Income - Exempt income

CW 13: Proceeds from share or option acquired under venture investment agreement

You could also call this:

“Tax-free profits from selling certain venture investments”

If you’re not from New Zealand and you sell shares or options to buy shares in a company, you might not have to pay tax on the money you make. This is called exempt income. For this to happen, there are some rules you need to follow:

The company you’re investing in must have more than half of its assets and employees in New Zealand when you first buy shares or options.

When you first buy shares or options, someone called a venture capital manager must buy them for you. At the same time, they must also buy similar shares or options for the Venture Investment Fund or a company it owns.

While you own the shares or options, the company can’t mainly do things like developing land, owning land, mining, providing financial services, insurance, building or buying public infrastructure, or investing to make money from interest, dividends, rent, or leasing personal property.

When you sell your shares or options, the venture capital manager and you must have followed all the rules in your agreements. Also, no one who lives in New Zealand (or group of people who are connected) can own more than 10% of the share or option you’re selling.

A venture investment agreement is a special deal between a venture capital manager and the Venture Investment Fund (or a company it owns). This agreement says how they’ll invest in companies together. The companies they invest in must have more than half of their assets and employees in New Zealand when the first investment is made.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1513171.

Topics:
Money and consumer rights > Taxes
Business > Industry rules
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Part C Income
Exempt income

CW 13Proceeds from share or option acquired under venture investment agreement

  1. An amount of income that a non-resident derives from the sale or other disposal of a share, or option to buy a share, in a company is exempt income if the requirements of subsections (2) to (5) are met.

  2. The first requirement is that, when the non-resident first acquires a share, or option to buy a share, in the company in a way that meets the requirements of subsection (3), the company must have in New Zealand—

  3. more than 50% in value of the company’s assets; and
    1. more than 50% in number of the company’s employees.

      1. The second requirement is that, when the non-resident first acquires a share or option to buy a share (the first interest) in the company, a person (the venture capital manager) must acquire, at the same time and on the same terms,—

      2. the first interest, on behalf of the non-resident; and
        1. another share or option that confers the same rights and imposes the same obligations as the first interest—
          1. on behalf of the Venture Investment Fund or a company owned by the Venture Investment Fund; and
            1. under a venture investment agreement.

            2. The third requirement is that, while the non-resident holds the share or option, the company must not have 1 or more of the following as a main activity:

            3. land development:
              1. land ownership:
                1. mining:
                  1. provision of financial services:
                    1. insurance:
                      1. construction of public infrastructure assets:
                        1. acquisition of public infrastructure assets:
                          1. investing with a main aim of deriving, from the investment, income in the form of interest, dividends, rent, or personal property lease payments that are not royalties.

                            1. The fourth requirement is that, when the non-resident disposes of the share or option,—

                            2. the venture capital manager must have complied with the venture capital manager’s obligations under the venture investment agreement; and
                              1. the non-resident must have complied with the non-resident’s obligations under any agreement between the non-resident and the Venture Investment Fund or a company owned by the Venture Investment Fund; and
                                1. no person who is resident in New Zealand and no group of associated persons who are resident in New Zealand has a direct or indirect interest of more than 10% in the share or option.

                                  1. In this section, venture investment agreement means an agreement that—

                                  2. is an agreement, relating to investment in companies, between parties that include—
                                    1. a venture capital manager; and
                                      1. the Venture Investment Fund or a company owned by the Venture Investment Fund; and
                                      2. provides for investments under the agreement to be managed by the venture capital manager; and
                                        1. provides that an investment under the agreement must be in a company that, when the first investment in the company under the agreement is made, has in New Zealand—
                                          1. more than 50% in value of the company’s assets; and
                                            1. more than 50% in number of the company’s employees.

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