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Income Tax Act 2007

Taxation of certain entities - Qualifying companies (QC)

HA 11: When requirements no longer met: qualifying companies

You could also call this:

“What happens when a qualifying company stops meeting requirements”

If a qualifying company stops meeting the requirements set out in sections HA 5 to HA 9, it will lose its status as a qualifying company. This change happens even if no one knows about it at the time. The company’s status as a qualifying company ends at the start of the income year when the change happens.

There’s an exception to this rule. A company won’t lose its status just because it doesn’t follow section HA 7(2) in certain situations involving trusts and dividends.

If a company asks, the Commissioner might let them keep their status until a later income year. This can happen if the company didn’t know and couldn’t have been expected to know that it no longer met the requirements, and if ending their status immediately would be too harsh.

Some examples of when a company might not have known include:

  • They thought they would get more time to meet the requirements
  • They thought their foreign income wouldn’t go over the limit
  • They thought certain dividends would be distributed as beneficiary income

The Commissioner might consider things like:

  • How long it took for the company to find out they didn’t meet the requirements
  • What kind of business the company did during that time

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1517151.

Topics:
Money and consumer rights > Taxes
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Part H Taxation of certain entities
Qualifying companies (QC)

HA 11When requirements no longer met: qualifying companies

  1. This section applies when, through changed circumstances, a qualifying company no longer meets the requirements of sections HA 5 to HA 9.

  2. The company’s status as a qualifying company is ended, whether or not it is, or could be, known at the time the circumstances arise that the company no longer meets the requirements.

  3. The company’s status as a qualifying company is treated as ended from the start of the income year in which the change of circumstances occurs. Subsection (6) overrides this subsection.

  4. Repealed

  5. Despite subsection (1), a company's status as a qualifying company is not ended merely because it does not comply with section HA 7(2) when—

  6. all dividends that can, under general law, be distributed by the trustee are beneficiary income of a beneficiary other than—
    1. a trustee beneficiary; or
      1. a beneficiary that is a company other than a qualifying company; and
      2. some of the dividends derived by the trustee from the qualifying company have vested or have been distributed as beneficiary income of a beneficiary other than—
        1. a trustee beneficiary; or
          1. a beneficiary that is a company other than a qualifying company.

          2. On an application by a qualifying company, the Commissioner may defer the date on which the company’s status ends to the start of a later income year if—

          3. the company did not know, and could not reasonably be expected to have known, at the time the circumstances arose that it no longer met the requirements; and
            1. in the circumstances, it would be an unduly harsh or inappropriate outcome.

              1. Examples of the circumstances that may apply for the purposes of subsection (6)(a) are a reasonable expectation or belief that—

              2. the company would continue to meet the requirements through an extension under section HA 34, HA 35, or HA 37; or
                1. an amount of foreign non-dividend income that the company derives would not breach the threshold in section HA 9; or
                  1. the dividends referred to in section HA 7(2) would be distributed as beneficiary income.

                    1. Examples of the circumstances that may apply for the purposes of subsection (6)(b) are—

                    2. the length of time between the start of the income year and the date of the change in circumstances:
                      1. the length of time between the date of the change in circumstances and the date when the company knew, or could reasonably be expected to have known, that the requirements were not met:
                        1. the kinds of transactions that the company made during the periods of time described in paragraphs (a) and (b).

                          Compare
                          Notes
                          • Section HA 11 heading: substituted (with effect on 1 April 2008), on , by section 59(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
                          • Section HA 11(4) heading: repealed (with effect on 1 April 2008), on (applying for the 2008–09 and later income years), pursuant to section 59(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
                          • Section HA 11(4): repealed (with effect on 1 April 2008), on (applying for the 2008–09 and later income years), by section 59(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
                          • Section HA 11(5): substituted (with effect on 1 April 2008), on , by section 254(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                          • Section HA 11 list of defined terms apply: inserted, on , by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
                          • Section HA 11 list of defined terms LAQC: repealed, on , by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).