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New Zealand law explained for everyone

Income Tax Act 2007

Memorandum accounts - Imputation credit accounts (ICA)

OB 60: Imputation credits attached to dividends

You could also call this:

“Company tax credits can be added to your dividend payments”

When a company that keeps an imputation credit account (ICA) pays you a dividend, they can add an imputation credit to it. This is a way to pass on some of the tax they’ve already paid to you.

Sometimes, the company can decide to add an imputation credit to a dividend after it’s been paid. They can do this in certain situations described in section OB 62.

To work out how much of the dividend is made up of imputation credits, you can use a simple calculation. You divide the amount of the credit by the amount of the dividend (not including the credit). This gives you the imputation ratio.

There’s a limit to how much of a dividend can be made up of imputation credits. This limit is worked out using a calculation described in section OA 18(2).

If an Australian ICA company pays you a dividend in Australian dollars, it needs to be changed into New Zealand dollars. To do this, you multiply the Australian dollar amount by the exchange rate. The exchange rate you use depends on when the dividend was declared and when it was paid.

Section OB 63 might change some of these rules, so it’s important to check that section too.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1518852.

Topics:

Money and consumer rights > Taxes

OB 59: ICA refund of schedular income tax, or

“Imputation debit for Australian ICA companies receiving schedular income tax refunds”

OB 61: ICA benchmark dividend rules, or

“Rules for companies paying multiple dividends in a tax year”

Part O Memorandum accounts
Imputation credit accounts (ICA)

OB 60Imputation credits attached to dividends

When an ICA company pays a dividend, it may attach an imputation credit to the dividend. Section OB 63 overrides this section.
The ICA company may determine that an imputation credit is retrospectively attached to a dividend in the circumstances described in section OB 62.
A dividend with an imputation credit attached has an imputation ratio calculated using the formula—
$credit attached ÷ net dividend paid.$

Where:
In the formula in subsection (3),—
credit attached is the amount of the imputation credit attached to the dividend:
net dividend paid is the amount of the dividend paid, excluding the amount of the imputation credit attached.

A dividend with an imputation credit attached must not have an imputation ratio that is more than the maximum permitted ratio calculated under section OA 18(2) (Calculation of maximum permitted ratios).
A dividend paid in Australian currency by an Australian ICA company must be converted into New Zealand currency, calculated using the formula—
$Australian dollar value × exchange rate.$

Where:
In the formula in subsection (6),—
Australian dollar value is the amount of the dividend in Australian dollars:
exchange rate is the close of trading spot exchange rate for the Australian dollar on—
1. the day the dividend is declared if that day is no more than 3 months before the dividend is paid; or
2. the day the dividend is paid if that day is more than 3 months after the dividend is declared.

Compare

2004 No 35 ss ME 1B, ME 6, ME 8(1), (2)

Notes

Section OB 60(4)(b): amended, on 1 April 2017, by section 204(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section OB 60 list of defined terms FDP credit: repealed, on 1 April 2017, by section 204(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).