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LP 3: Use of remaining credits
or “How a company can use or share its leftover tax credits”
You could also call this:

“Rules for companies to keep using their unused tax credits”

This section talks about how companies can keep using tax credits they haven’t used yet. It’s part of the rules for tax credits in the Income Tax Act 2007.

When a company has a tax credit they need to carry forward under section LP 3(4), they can use it if a group of people owns enough of the company. This group needs to have at least 49% of the voting rights in the company during a certain time period. If the company’s value in the market matters, the group also needs to own at least 49% of the company’s market value.

Even if the company doesn’t meet these requirements, they might still be able to use the tax credit. This can happen if they could carry the credit forward to the next tax year under different rules about carrying forward losses.

The section also explains some important terms:

  • The “continuity period” is the time from when the tax credit first appears to when it’s carried forward to.
  • The “minimum market value interest” is the smallest amount of the company’s market value a person owns during this time.
  • The “minimum voting interest” is the smallest amount of voting rights a person has in the company during this time.

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Next up: LP 5: Application of benchmark dividend rules and imputation credit ratio

or “Rules for companies paying extra dividends and tax credits”
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Part L Tax credits and other credits
Tax credits for supplementary dividends

LP 4Continuity rules for carrying credits forward

  1. This section applies for the purposes of section LA 5(3) (Treatment of remaining credits) when a company has an amount of a tax credit that must be carried forward under section LP 3(4).

  2. The amount is available for use under section LP 3(4) if a group of persons exists that has, for the continuity period,—

  3. minimum voting interests in the company that add up to 49% or more; and
    1. when a market value circumstance exists for the company in the continuity period, minimum market value interests in the company that add up to 49% or more.

      1. Despite a breach of continuity under subsection (2), the amount is available for use under section LP 3(4) if the amount could be carried forward to the tax year following the current year under subpart IB (Carrying forward companies’ loss balances: continuity of business activities), treating the amount as a tax loss component arising on the last day of the income year corresponding to the tax year in which the tax credit first arose.

      2. In this section,—

        continuity period means the period that starts on the first day of the income year that corresponds to the tax year in which the tax credit first arises and ends on the last day of the income year that corresponds to the tax year to which the amount of the credit has been carried forward

          minimum market value interest means the lowest market value interest that a person has in the company for the continuity period

            minimum voting interest means the lowest voting interest that a person has in the company for the continuity period.

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            Notes
            • Section LP 4(2): substituted (with effect on 1 April 2008), on , by section 345(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
            • Section LP 4(2B) heading: inserted (with effect on 1 April 2020), on , by section 117(1) (and see section 117(3) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
            • Section LP 4(2B): inserted (with effect on 1 April 2020), on , by section 117(1) (and see section 117(3) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
            • Section LP 4 list of defined terms market value circumstance: inserted (with effect on 1 April 2008), on , by section 345(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
            • Section LP 4 list of defined terms tax loss component: inserted (with effect on 1 April 2020), on , by section 117(2) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).