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Income Tax Act 2007

Memorandum accounts - Terminating provisions

OZ 5: ASCA lost excess available subscribed capital

You could also call this:

“How to calculate credits for redeemed units in certain trusts and funds”

This section applies to public unit trusts or group investment funds that earn category A income. If you had such a trust or fund between 17 October 2002 and 30 September 2003, and you redeemed a unit during that time, you might be able to use this rule.

If the amount of available subscribed capital per unit was more than what you got back when you redeemed the unit, you can choose to calculate an opening credit balance. You can do this in two ways.

The first way is to work out how much available subscribed capital was actually lost. You do this by finding the difference between what was paid when the unit was bought and what was paid when it was redeemed.

The second way involves pretending to wind up the trust or fund. You would calculate how much tax would be paid if everything was sold at market value. Then you would work out how many credits would be left after paying this tax, and how many credits you would need to fully impute a redemption dividend for each unit holder. The difference between these two amounts is your opening balance.

When doing these calculations, you need to consider things like non-taxable gains and losses, lost imputation credits, foreign tax credits, and earnings from before the trust or fund had an imputation credit account.

You can choose any date during the specified period as your pretend liquidation date. Your calculations should be consistent with how you usually do your financial statements and unit pricing, based on selling assets normally and using values you can prove from the market.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1519718.

Topics:
Money and consumer rights > Taxes
Money and consumer rights > Savings and retirement
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OZ 4: Terminating modifications to debits for loss of shareholder continuity, or

“Special rules for company account credits when ownership changes”

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OZ 6: ASCA redemption of unused investments, or

“Tax rules for public trusts and funds buying back special shares”

Part O Memorandum accounts
Terminating provisions

OZ 5ASCA lost excess available subscribed capital

  1. This section applies when a public unit trust or a group investment fund that derives category A income—

  2. is in existence between 17 October 2002 and 30 September 2003 (both dates inclusive); and
    1. has redeemed a unit in the trust or fund; and
      1. the slice rule was used to determine the tax treatment of the proceeds from the redemption; and
        1. the amount of the available subscribed capital, calculated on a per unit basis, is greater than the proceeds from the redemption for the unit.

          1. The trust or fund may choose for the period to calculate an opening credit balance using 1 of the methods set out in subsections (3) and (4).

          2. Method 1 requires the trust or fund to calculate the actual amount of available subscribed capital lost, that is the difference, in total, between the amount paid on subscription for a unit and the amount paid on redemption of the unit.

          3. Method 2 requires the trust or fund to make a calculation for the notional winding up of the trust or fund by taking the following steps:

          4. step 1: determine the total amount of income tax that would be payable on liquidation, treating the value of assets and liabilities as determined at their market value at the date of the notional liquidation according to provisions applying at that date:
            1. step 2: determine the amount of notional credits that are available after notional tax is paid in relation to them:
              1. step 3: determine the amount of notional credits required to fully impute, for each unit holder, the payment of a redemption dividend, and aggregate the amounts, applying the maximum imputation ratio to the total amount:
                1. step 4: establish the imputation credit shortfall between the notional credits under step 2 and the credits required under step 3.

                  1. The amount of the opening balance is—

                  2. the amount of the difference for method 1; and
                    1. the shortfall referred to in subsection (4)(d) for method 2.

                      1. For the purposes of subsection (4), the structural features of the taxation and imputation systems that would allow a company that does not issue shares on terms subject to section CD 22(4) (Returns of capital: off-market share cancellations) to fully impute a distribution made on the liquidation of the company, include the tax effects of—

                      2. non-taxable gains and losses, including exempt income; and
                        1. imputation credits lost because shareholder continuity is lost; and
                          1. foreign tax credits; and
                            1. retained earnings generated before the trust or fund established an imputation credit account.

                              1. For the purposes of this section,—

                              2. the date of notional liquidation is the date chosen by the trust or fund falling in the period referred to in subsection (1)(a):
                                1. a calculation under this section must be undertaken in a manner consistent with the preparation of financial statements and unit pricing calculations, based on an orderly realisation of assets in the ordinary course of business and demonstrable market valuations.

                                  Compare
                                  Notes
                                  • Section OZ 5(1)(d): substituted (with effect on 1 April 2008), on (applying for the 2008–09 and later income years), by section 121(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
                                  • Section OZ 5(6)(a): substituted (with effect on 30 June 2009), on , by section 485(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                  • Section OZ 5 list of defined terms foreign tax: repealed, on , by section 248(a) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                                  • Section OZ 5 list of defined terms tax credit: inserted, on , by section 248(b) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                                  • Section OZ 5 compare note: amended (with effect on 1 April 2008), on , by section 121(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).