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Income Tax Act 2007

Avoidance and non-market transactions - Avoidance: specific

GB 35: Imputation arrangements to obtain tax advantage

You could also call this:

“Rules against unfair use of tax credits on company dividends”

When a company gives out shares or pays dividends, they sometimes add something called an imputation credit. This credit can help some people pay less tax. Section GB 36 applies if someone tries to use these credits unfairly to get a tax advantage.

There are two main ways this can happen. First, when shares are sold or given out, if someone expects a dividend with an imputation credit and plans to get a tax advantage from it. This isn’t allowed if getting the tax advantage is a big reason for the plan.

The second way is when a company gives out dividends or bonus shares over time. If the company gives more imputation credits to some people who can get a tax advantage, and less to others who can’t, that’s not allowed.

A dividend has a higher credit value if it has an imputation credit when another doesn’t, or if it has a higher imputation ratio than another dividend. This matters because giving higher credit value dividends to some people and not others can be unfair.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1516997.

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

GB 35Imputation arrangements to obtain tax advantage

  1. Section GB 36 applies if an arrangement to obtain a tax advantage arises as described in either subsection (2) or (3).

  2. An arrangement is an arrangement to obtain a tax advantage if—

  3. the arrangement is for the disposal or issue of shares; and
    1. a party to the arrangement might reasonably have expected that a dividend would be paid in relation to the shares with an imputation credit attached; and
      1. a party might reasonably have expected that a party will, or will not, be able to obtain a tax advantage from the credit; and
        1. a purpose of the arrangement is that a party will obtain a tax advantage; and
          1. the purpose is not a merely incidental one.

            1. An arrangement is an arrangement to obtain a tax advantage if—

            2. the arrangement relates to 1 or more distributions by a company, including bonus issues, during 1 or more tax years; and
              1. under the arrangement, the company streams—
                1. the payment of dividends; or
                  1. the attachment of imputation credits; and
                  2. the streaming will give a higher credit value to a person who will obtain a tax advantage from the higher credit value than to a person who will not or may reasonably be expected to obtain a lesser benefit.

                    1. For the purposes of subsection (3)(c), a dividend has a higher credit value than another dividend if 1 or both of the following applies:

                    2. the dividend has an attached imputation credit and the other dividend does not:
                      1. the imputation ratio of the dividend is higher than that of the other dividend.

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                        Notes
                        • Section GB 35(2)(b): amended, on , by section 119(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                        • Section GB 35(3)(b): replaced, on , by section 119(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                        • Section GB 35(4): replaced, on , by section 119(3) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                        • Section GB 35 list of defined terms combined imputation and FDP ratio: repealed, on , by section 119(4) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                        • Section GB 35 list of defined terms FDP credit: repealed, on , by section 119(4) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                        • Section GB 35 list of defined terms FDP ratio: repealed, on , by section 119(4) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).