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Income Tax Act 2007

Memorandum accounts - Imputation credit accounts (ICA)

OB 72: Imputation additional tax on joining wholly-owned group

You could also call this:

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

When a company joins a new group, it might have to pay extra tax called imputation additional tax. This can happen in two ways.

The first way is if the company has a negative balance in its special tax account when it joins the new group. This negative balance must have happened when the company was in its old group, and no one in the old group has paid the extra tax for it yet.

The second way is if the people who own the new group are very different from those who owned the old group. If the new owners have 67% more voting power than the old owners, the company might have to pay extra tax.

The amount of extra tax depends on how much money the company might be able to get back from the tax office. This includes money in a tax pooling account and any tax refunds the company is entitled to.

The company needs to pay this extra tax by the 20th day of the month after it leaves its old group. All the companies in the new group are responsible for paying this tax together.

The company or another company in the new group can choose to use any extra tax payments they have made to pay this additional tax.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1518894.

Topics:
Money and consumer rights > Taxes
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OB 71: Imputation additional tax on leaving group of companies, or

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

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OB 72B: Limit on using entitlement to refund after joining wholly-owned group, or

“ Restrictions on using tax refunds when a company joins a new wholly-owned group ”

Part O Memorandum accounts
Imputation credit accounts (ICA)

OB 72Imputation additional tax on joining wholly-owned group

  1. An ICA company to which subsection (2) applies may be liable for imputation additional tax under—

  2. subsection (3) as the company’s first liability under this section:
    1. subsection (5) as the company’s second liability under this section.

      1. The company is 1 to which all of the following apply:

      2. the company stops being part of a group of companies (the former group) 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. The company is liable for imputation additional tax if, at a particular time,—

            2. a debit balance exists in the company’s imputation credit account; and
              1. an imputation debit arose when the company was part of the former group; and
                1. the imputation additional tax liability of the company has not been paid under section OB 71 by the company or another company in the former group.

                  1. The amount of the imputation additional tax liability under subsection (3) is equal to the amount of the imputation debit at the time the company becomes part of the new group.

                  2. The company is liable for an amount of imputation additional tax, equal to the excess entitlement determined under subsection (6), if a group of people hold common voting interests in the new group that exceed by 67% or more the common voting interests in the former group that are held by the same people immediately before the company joins the new group.

                  3. The company is liable for an amount of imputation additional tax given by section OB 72B(8) if the requirements of that provision are met.

                  4. The company’s excess entitlement at a particular time is 1 of the following amounts:

                  5. zero, if the credit balance of the company's imputation credit account at the time is equal to or more than the amount (the total refundable amount) that is the total of the following:
                    1. the amount in the tax pooling account provided by or for the benefit of the company that is more than the company's liability to pay income tax or provisional tax at the time:
                      1. the amount of the refund to which the company is entitled under sections RM 2, RM 4, and RM 5 (which relate to refunds of excess tax), other than an amount affected by a restriction under section OB 72B(5); or
                      2. the total refundable amount, if there is no credit balance in the company's imputation credit account at the time; or
                        1. the excess of the total refundable amount over the credit balance in the company's imputation credit account at the time, if paragraph (b) does not apply.

                          1. The imputation additional tax must be paid to the Commissioner no later than the 20th day of the month following the month in which the company stops being part of the former group.

                          2. The company and all companies in the new group are jointly liable for the imputation additional tax. A payment of imputation additional tax does not satisfy any other liability of the company or the new group.

                          3. For a liability under subsections (3) and (5), the company or another company in the new group may choose to satisfy the liability by applying an excess tax payment in discharging it.

                          Compare
                          Notes
                          • Section OB 72(1)(a): amended (with effect on 1 March 2010), on , by section 101(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
                          • Section OB 72(2): replaced (with effect on 1 October 2016), on , by section 208(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                          • Section OB 72(5): substituted (with effect on 1 March 2010), on , by section 101(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
                          • Section OB 72(5B) heading: inserted (with effect on 1 March 2010), on , by section 101(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
                          • Section OB 72(5B): inserted (with effect on 1 March 2010), on , by section 101(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
                          • Section OB 72(6)(a): substituted (with effect on 1 March 2010), on , by section 101(3) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
                          • Section OB 72(6)(a)(ii): amended (with effect on 1 April 2013), on , by section 81 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
                          • Section OB 72(6)(b): substituted (with effect on 1 March 2010), on , by section 101(3) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
                          • Section OB 72(6)(c): substituted (with effect on 1 March 2010), on , by section 101(3) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
                          • Section OB 72 list of defined terms group of companies: inserted (with effect on 1 October 2016), on , by section 208(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                          • Section OB 72 list of defined terms imputation credit: inserted (with effect on 1 October 2016), on , by section 208(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                          • Section OB 72 list of defined terms loss balance: inserted (with effect on 1 October 2016), on , by section 208(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).