Plain language law

New Zealand law explained for everyone

Income Tax Act 2007

Avoidance and non-market transactions - Avoidance: specific

GB 1: Arrangements involving dividend stripping

You could also call this:

“Tax rules for selling shares to avoid dividend payments”

This law is about when you sell shares in a company. If you sell your shares as part of a plan to avoid paying tax, and you get something instead of a dividend, you need to know about this rule.

You might get money or something else valuable when you sell your shares. If this is meant to replace a dividend you would have got, should have got, or might have got, then it counts as a dividend. The law says you got this dividend in the same year you sold your shares.

When does the law think you got something instead of a dividend? It’s when you get something that’s the same as or replaces a dividend. This could be a dividend you would have got, probably would have got, or might have been expected to get if you hadn’t sold your shares.

Remember, this only applies if selling your shares was part of a plan to avoid paying tax. If that’s the case, whatever you got instead of a dividend will be treated just like a real dividend when it comes to 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=DLM1516871.

Topics:
Money and consumer rights > Taxes
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Part G Avoidance and non-market transactions
Avoidance: specific

GB 1Arrangements involving dividend stripping

  1. This section applies when—

  2. a person disposes of shares in a company in an income year; and
    1. the disposal is part of a tax avoidance arrangement; and
      1. some or all of the consideration that the person derives from the disposal is in substitution for a dividend in an income year.

        1. An amount derived by the person is in substitution for a dividend if it is equivalent to or substitutes for a dividend that, but for the arrangement, the person—

        2. would have derived; or
          1. would in all likelihood have derived; or
            1. might be expected to have derived.

              1. The amount derived in substitution for a dividend is treated as a dividend derived by the person in the income year in which the disposal occurs.

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