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Income Tax Act 2007

Taxation of certain entities - Qualifying companies (QC)

HA 44: Measuring effective interests

You could also call this:

“How to calculate your ownership in a company”

When you have an interest in a company, it’s measured by looking at your voting power and the market value of your shares. This is done using special rules in another part of the law. If you’re a company yourself, these rules treat you as if you weren’t a company, and some other rules don’t apply to you.

If your interest in the company changes during the year, they calculate an average based on how long you held different levels of interest.

If you decide to join the company as a shareholder after the start of the year, they measure your interest from when you first became a shareholder, even if that’s before you officially joined.

If you decide to leave the company, you’re treated as if you have no interest in it from the time you leave, unless you join again later in the same year.

Sometimes, a big shareholder might agree to take responsibility for a smaller shareholder’s part of the company. When this happens, the big shareholder’s interest is calculated without including the part they’re responsible for on behalf of the smaller shareholder.

If the big shareholder decides they don’t want to be responsible for the smaller shareholder’s part anymore, the smaller shareholder’s interest is treated as zero from that point on.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1517247.

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HA 43: Meaning of effective interest, or

“How the law measures your ownership in a company for tax purposes”

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Part H Taxation of certain entities
Qualifying companies (QC)

HA 44Measuring effective interests

A person’s voting interest and market value interest in a company is measured under subpart YC (Measurement of company ownership). If the person is a company, the voting interest and market value interest are measured at a particular time or for an income year under those sections as if—
the person were not a company; and
sections YC 4 and YC 6 (which relate to corporate shareholders and certain excluded securities) did not apply.

If a person’s voting interest or market value interest varies during an income year, the measure of their effective interest is the weighted average of their voting interest or market value interest, as applicable, for the income year.
If a shareholder makes an election under section HA 5 after the start of the income year, their voting interest and market value interest is measured from the earliest day in the income year when they became a shareholder in the company, even if the day is earlier than the date of the election.
A person who revokes an election under section HA 32 or HA 33 is treated as having no voting interest and no market value interest for the period of the income year after the revocation takes effect unless they make a later election for the same income year. In this subsection, the person is a trustee when an election is made under section HA 28 by a person other than the trustee.
If a majority shareholder has made an election and agreed under sections HA 8 and HA 29 to take personal liability to the extent of a minority shareholder’s effective interest in the company, any effective interest for which the minority shareholder has agreed to be personally liable under section HA 8 is excluded in measuring the majority shareholder’s effective interest.
If a majority shareholder’s election is revoked under section HA 32(1) or HA 33(1)(d), the effective interest of the minority shareholder for which the majority shareholder is liable is treated as zero for the part of the income year that follows the day on which the revocation takes effect.

Compare

2004 No 35 s HG 2

Notes

Section HA 44(1): amended, on 2 November 2012, by section 77 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).