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Income Tax Act 2007

Memorandum accounts - General provisions - Amalgamation of companies in consolidated groups

OA 18: Calculation of maximum permitted ratios

You could also call this:

“How to work out the most credit you can add to dividends or distributions”

When you want to add a credit to a dividend or distribution, you need to know how much credit you can add. This section explains how to figure out the maximum amount of credit you can add.

The credit can be an imputation credit or a Maori authority credit. You use these credits when you’re working out the imputation ratio or the Maori authority credit ratio.

There’s a limit to how much credit you can add. To find this limit, you use a special formula. The formula is: tax rate divided by (1 minus tax rate).

The tax rate you use in the formula depends on what kind of credit you’re adding:

For imputation credits, you use the basic income tax rate found in schedule 1, part A, clause 2 for the year the dividend is paid.

For Maori authority credits, you use the basic income tax rate found in schedule 1, part A, clause 7 for the year the distribution is paid.

Sometimes, there are special rules that change how this calculation works. You can find these rules in Sections OZ 8 and OZ 9.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1518689.

Topics:
Money and consumer rights > Taxes
Māori affairs > Treaty of Waitangi
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Part O Memorandum accounts
General provisions: Amalgamation of companies in consolidated groups

OA 18Calculation of maximum permitted ratios

  1. This section applies in relation to an imputation credit and a Maori authority credit, for the purposes of the calculation of—

  2. an imputation ratio; and
            1. a Maori authority credit ratio.

              1. A dividend or distribution with a credit attached must not have a ratio for the amount of the credit to the amount of the dividend or distribution that is more than the maximum permitted ratio calculated using the formula—

                tax rate ÷ (1 − tax rate).

                Where:

                • In the formula, tax rate is—

                • for subsection (1)(a) to (e), the basic rate of income tax set out in schedule 1, part A, clause 2 (Basic tax rates: income tax, ESCT, RSCT, RWT and attributed fringe benefits) for the income year in which the dividend is paid:
                  1. for subsection (1)(f), the basic rate of income tax set out in schedule 1, part A, clause 7 for the income year in which the distribution is paid.

                    1. Sections OZ 8 and OZ 9 (which relate to the calculation of maximum permitted ratios in certain income years) may apply to modify this section.

                    Compare
                    Notes
                    • Section OA 18(1): amended, on , by section 188(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                    • Section OA 18(1)(b): repealed, on , by section 188(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                    • Section OA 18(1)(c): repealed, on , by section 188(3) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                    • Section OA 18(1)(d): repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 90(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                    • Section OA 18(1)(e): repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 90(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                    • Section OA 18(3): substituted (with effect on 1 April 2008), on , by section 85(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
                    • Section OA 18(4) heading: added, on , by section 492 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                    • Section OA 18(4): added, on , by section 492 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                    • Section OA 18 list of defined terms basic rate: repealed, on , by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                    • Section OA 18 list of defined terms combined imputation and FDP ratio: repealed, on , by section 188(4) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                    • Section OA 18 list of defined terms CTR credit: repealed (with effect on 1 July 2011), on , by section 90(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                    • Section OA 18 list of defined terms FDP credit: repealed, on , by section 188(4) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                    • Section OA 18 list of defined terms pay: inserted (with effect on 1 April 2008), on , by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).