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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 maximum credit a company can pay with a dividend"

Illustration for Income Tax Act 2007

When a company pays a dividend, it can also pay a credit. You need to work out the ratio of the credit to the dividend. The ratio must not be more than a certain amount, which is calculated using a formula: tax rate ÷ (1 − tax rate). The tax rate is the basic rate of income tax, which you can find in schedule 1, part A, clause 2 or schedule 1, part A, clause 7, depending on the type of credit.

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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.

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Topics:
Money and consumer rights > Taxes
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Part OMemorandum 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).