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Income Tax Act 2007

Memorandum accounts - General provisions

OA 8: Shareholder continuity requirements for memorandum accounts

You could also call this:

“Rules for keeping company credits when ownership changes”

This section talks about how companies keep track of their credits in special accounts called memorandum accounts. When a company gets a credit, they can keep it for later use, but only if the same group of people continues to own at least 66% of the company. This rule is called the shareholder continuity requirement.

If you have a qualifying company, you don’t have to follow this rule. But if your company stops being a qualifying company, you need to make some changes to your accounts and start following the shareholder continuity rule.

If a company loses the required shareholder continuity, they might have to remove some credits from their account. This is called a debit. The amount of the debit depends on how many unused credits are left in the account.

To meet the shareholder continuity requirement, a group of people must keep owning at least 66% of the voting interests in the company. If the company’s value is important for tax purposes, the same group must also own at least 66% of the market value interests.

There are some special rules about how to count these interests and how to deal with credits and debits in the accounts. These rules help make sure everything is fair and follows the law.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1518664.

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Money and consumer rights > Taxes
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Part O Memorandum accounts
General provisions

OA 8Shareholder continuity requirements for memorandum accounts

  1. This section applies when a company or a consolidated group maintains a memorandum account.

  2. An amount that is a credit in the account may be carried forward from a credit date to a later time only if the company or consolidated group that has the credit maintains a 66% continuity of shareholding under subsection (7) from the credit date to the later time. Subsections (3B) to (5) override this subsection.

  3. A credit is treated as continuing to exist to the extent to which it is not reduced by an earlier or later debit arising in the account.

  4. Subsection (2) does not apply to a qualifying company. But, if section HA 11(1) (When requirements no longer met) applies to the company,—

  5. an adjustment must be made under section HA 18 (Treatment of dividends when qualifying company status ends) to the company's imputation credit account; and
    1. the shareholder continuity requirements apply to the company from the day on which the status as a qualifying company ends.

      1. Subsection (2) does not apply to a person who maintains an ASC account.

      2. Repealed

      3. For a memorandum account and for a company or consolidated group that maintains the account when the continuity of shareholding required by subsection (7) is lost, a debit arises under the relevant section in each subpart only to the extent to which an unused amount of credit remains in the memorandum account. The relevant sections are—

      4. section OB 41 (ICA debit for loss of shareholder continuity):
            1. section OK 15 (MACA debit for loss of shareholder continuity):
              1. section OP 42 (Consolidated ICA debit for loss of shareholder continuity).

                    1. The shareholder continuity requirement is that, while some or all of the credit still exists, a group of persons must continue to hold—

                    2. aggregate minimum voting interests in a company or consolidated group of at least 66%; and
                      1. if a market value circumstance exists for a company or, in the case of a consolidated group, a group company, aggregate minimum market value interests in the company or group of at least 66%.

                        1. The following rules apply for the purposes of subsection (7):

                        2. the minimum interest referred to in subsection (7)(a) or (b) of a person must be counted if their interests change after the credit arises; and
                          1. a credit retains its separate character and is not treated as part of a credit referred to in section OA 7 in a later tax year; and
                            1. the amount by which a credit is reduced by an earlier or later debit is found by—
                              1. treating debits as reducing credits in the order in which credits arise; and
                                1. counting an amount of a debit only once in the reduction of some or all of a credit; and
                                  1. applying any relevant terminating modifications set out in section OZ 4 (Terminating modifications to debits for loss of shareholder continuity) for a credit arising before 1 April 1992.

                                  Compare
                                  Notes
                                  • Section OA 8(2): amended (with effect on 1 April 2008), on , by section 376(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                  • Section OA 8(3B) heading: inserted (with effect on 1 April 2008), on , by section 376(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                  • Section OA 8(3B): inserted (with effect on 1 April 2008), on , by section 376(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                  • Section OA 8(3B)(a): amended, on , by section 180(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                                  • Section OA 8(4) heading: substituted (with effect on 1 April 2008), on , by section 376(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                  • Section OA 8(4): substituted (with effect on 1 April 2008), on , by section 376(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                  • Section OA 8(5) heading: repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , pursuant to section 85(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                  • Section OA 8(5): repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 85(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                  • Section OA 8(6)(b): repealed, on , by section 180(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                                  • Section OA 8(6)(c): repealed, on (applying for income years beginning on or after that date), by section 85(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                  • Section OA 8(6)(f): repealed, on , by section 180(3) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                                  • Section OA 8(6)(g): repealed, on (applying for income years beginning on or after that date), by section 85(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                  • Section OA 8 list of defined terms CTR account: repealed (with effect on 1 July 2011), on , by section 85(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                  • Section OA 8 list of defined terms FDP account: repealed, on , by section 180(4) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                                  • Section OA 8 list of defined terms policyholder credit account: repealed (with effect on 1 April 2008), on , by section 376(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).