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Income Tax Act 2007

Avoidance and non-market transactions - Avoidance: specific

GB 36: Reconstruction of imputation arrangements to obtain tax advantage

You could also call this:

“Government can stop tax avoidance through profit-sharing manipulation”

If you try to avoid paying taxes by manipulating how companies share profits, the government can stop you. This applies to arrangements where you sell or issue shares, or try to direct profits to certain people.

If the Commissioner of Inland Revenue decides this rule should apply, they can do two things:

  1. They can stop you from getting a tax credit that you would have received from the arrangement.

  2. They can make the company involved pay more tax by adding a debit to its imputation credit account in the tax year when the arrangement started.

If a company tries to direct profits to certain people and it’s the only one involved, the Commissioner can make the company pay more tax by adding a debit to its imputation credit account.

The amount of tax credit you lose, or the extra tax the company has to pay, is equal to the amount of imputation credit that the Commissioner thinks was part of the arrangement.

The Commissioner can make decisions about how to apply this rule using section 90AF of the Tax Administration Act 1994.

In this section, ‘account advantage’ means a credit added to a company’s imputation credit account under sections OB 4 to OB 29. ‘Tax credit advantage’ means a tax credit allowed under section LE 1.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1517000.

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

GB 36Reconstruction of imputation arrangements to obtain tax advantage

  1. In the case of a share disposal or issue arrangement described in section GB 35(2), or a streaming arrangement described in section GB 35(3), if the Commissioner decides this subsection should apply, the following paragraphs apply:

  2. a person who would get a tax credit advantage from the arrangement is denied it:
    1. a company that would get an account advantage from the arrangement has a debit to its imputation credit account in the tax year in which the arrangement began.

      1. In the case of a streaming arrangement described in section GB 35(3) in which the company is the only party, or if the Commissioner decides this subsection should apply, the company has a debit to its imputation credit account in the tax year in which the arrangement began. Subsection (1) does not apply to the extent to which this subsection applies to the arrangement.

      2. The amount of the credit or refund denied under subsection (1)(a) and the debit arising under subsection (1)(b) or (2) is in each case the amount of the imputation credit that the Commissioner determines is subject to the arrangement.

      3. The Commissioner may make determinations for the purposes of this section under section 90AF of the Tax Administration Act 1994.

      4. In this section and section 90AF of the Tax Administration Act 1994,—

        account advantage means a credit arising to an imputation credit account under sections OB 4 to OB 29 (which relate to credits arising to imputation credit accounts)

          tax credit advantage means a tax credit allowed under section LE 1 (Tax credits for imputation credits).

          Compare
          Notes
          • Section GB 36(1)(b): amended, on , by section 120(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
          • Section GB 36(2): amended, on , by section 120(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
          • Section GB 36(3): amended, on , by section 120(3) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
          • Section GB 36(5): replaced, on , by section 120(4) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
          • Section GB 36 list of defined terms FDP account: repealed, on , by section 120(5) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
          • Section GB 36 list of defined terms FDP credit: repealed, on , by section 120(5) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).