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Income Tax Act 2007

Memorandum accounts - Imputation credit accounts (ICA)

OB 71: Imputation additional tax on leaving group of companies

You could also call this:

“Extra tax when a company leaves one group and joins another”

When a company leaves a group of companies and joins a new group, it might have to pay extra tax called imputation additional tax. This happens when:

  1. The company moves to a new group because its ultimate owner changes.
  2. The old group had more than $1,000,000 in losses carried forward from the previous year, or the company shared tax credits with other companies in the old group.

The company might have to pay this extra tax if:

  1. It has a negative balance in its tax credit account when it changes owners.
  2. It has more tax credits than it should have when it changes owners.

The company can choose to pay the extra tax, transfer some of the negative balance to another company in the old group, or use its extra tax credits to reduce the amount it owes. It can also use a combination of these options.

If the company chooses to pay the extra tax, it must do so within 20 days after the month it leaves the old group. All companies in the old group are responsible for paying this tax together.

The company or another company in the old group can use extra tax payments to pay this tax. If the company transfers a negative balance or uses tax credits, it needs to provide a notice that the other company agrees to this.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1518890.

Topics:
Money and consumer rights > Taxes
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OB 72: Imputation additional tax on joining wholly-owned group, or

“Extra tax when a company joins a new group with different owners”

Part O Memorandum accounts
Imputation credit accounts (ICA)

OB 71Imputation additional tax on leaving group of companies

  1. This section applies in a tax year when—

  2. a company (company A) stops being part of a group of companies (the former group), because of a change in the ultimate owner of the company, and becomes part of a wholly-owned group of companies (the new group); and
    1. if the former group is a wholly-owned group of companies, the loss balance carried forward from the previous tax year for companies in the former group is more than $1,000,000; and
      1. if the former group is not a wholly-owned group of companies, company A has transferred imputation credits under section OB 83 to a company in the former group.

        1. Company A is liable for imputation additional tax under—

        2. subsection (2), if the company has a debit balance in the imputation credit account when the ultimate owner of the company changes:
          1. subsection (4), if the company has an amount of excess entitlement under subsection (5) when the ultimate owner of the company changes.

            1. At the time company A stops being part of the former group, it may choose to reduce or eliminate the debit balance by paying imputation additional tax of an amount no greater than the debit balance but, in dealing with the liability, it may transfer some or all of the debit balance under subsection (3) or choose to use its excess entitlement under subsection (4), or a combination of both.

            2. Company A may choose to transfer under section OB 44 some or all of a debit balance in the company’s imputation credit account to another company (company B) in the former group. An imputation additional tax liability remains for the amount of the debit balance that is not transferred.

            3. Company A is liable for an amount of imputation additional tax equal to the amount of the excess entitlement described in subsection (5) reduced, to no less than zero, by the amount of any payment that company A—

            4. made as provisional tax or income tax; and
              1. chooses to treat as having been paid by company B.

                1. Company A’s excess entitlement at the time it stops being part of the former group is 1 of the following amounts:

                2. zero, if the credit balance of its imputation credit account at the time is equal to or more than—
                  1. the amount in the tax pooling account provided by or for the benefit of company A that is more than its liability to pay income tax or provisional tax at the time; or
                    1. the entitlement company A would have to a refund under sections RM 2, RM 4, and RM 5 (which relate to refunds of excess tax) as if sections RM 13 to RM 17 (which relate to limits on refunds) did not apply; or
                    2. the total of the amounts referred to in paragraph (a)(i) and (ii) if no credit balance exists at the time; or
                      1. the excess of the total of the amounts referred to in paragraph (a)(i) and (ii) over the credit balance, if paragraph (b) does not apply.

                        1. If company A chooses to pay imputation additional tax under subsections (2) and (4), it must pay the amount to the Commissioner no later than the 20th day of the month following the month in which company A stops being part of the former group.

                        2. Company A and all companies in the former group are jointly liable for a payment of imputation additional tax under subsection (6). A payment of imputation additional tax does not satisfy any other liability of company A or the former group.

                        3. Company A, or another company in the former group, may choose to apply an excess tax payment to satisfy company A’s liability.

                        4. An election under this section must follow the form of an election under section OB 13(5). However, if subsection (3) or (4) apply to transfer a debit or treat an amount of tax as having been paid, company A must also provide a notice of agreement from company B in relation to the amount of excess tax payment.

                        Compare
                        Notes
                        • Section OB 71 heading: replaced (with effect on 1 October 2016), on , by section 207(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                        • Section OB 71(1): replaced (with effect on 1 October 2016), on , by section 207(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                        • Section OB 71(1B) heading: inserted (with effect on 1 April 2008), on , by section 100(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
                        • Section OB 71(1B): inserted (with effect on 1 April 2008), on , by section 100(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
                        • Section OB 71(2) heading: substituted (with effect on 1 April 2008), on , by section 100(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
                        • Section OB 71(2): amended (with effect on 1 October 2016), on , by section 207(3) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                        • Section OB 71(3): amended (with effect on 1 October 2016), on , by section 207(4) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                        • Section OB 71(4) heading: substituted (with effect on 1 April 2008), on , by section 100(3) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
                        • Section OB 71(4): substituted (with effect on 1 April 2008), on , by section 100(3) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
                        • Section OB 71(4)(a): amended (with effect on 1 April 2008), on , by section 398(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                        • Section OB 71(5): amended (with effect on 1 October 2016), on , by section 207(5) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                        • Section OB 72(5)(a)(ii): amended (with effect on 1 April 2013), on , by section 80 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
                        • Section OB 71(5)(c): substituted (with effect on 1 April 2008), on , by section 398(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                        • Section OB 71(6): amended (with effect on 1 October 2016), on , by section 207(6) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                        • Section OB 71(6): amended (with effect on 1 April 2008), on , by section 100(4) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
                        • Section OB 71(7): amended (with effect on 1 October 2016), on , by section 207(7) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                        • Section OB 71(8): amended (with effect on 1 October 2016), on , by section 207(8) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                        • Section OB 71(9): amended (with effect on 1 April 2008), on , by section 398(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                        • Section OB 71 list of defined terms group of companies: inserted (with effect on 1 October 2016), on , by section 207(9) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                        • Section OB 71 list of defined terms imputation credit: inserted (with effect on 1 October 2016), on , by section 207(9) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                        • Section OB 71 list of defined terms loss balance: inserted (with effect on 1 October 2016), on , by section 207(9) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                        • Section OB 71 list of defined terms notice: inserted, on , by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).