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Income Tax Act 2007

Definitions and related matters - Measurement of company ownership

YC 18: Reverse takeovers

You could also call this:

“Rules for when a company takes over another company's subsidiary”

You need to know about something called a reverse takeover. This happens when a company (called the initial parent) owns all of another company (called the subsidiary). Then, some changes happen to the initial parent company. After these changes, a new company (called the new parent) now owns all of the subsidiary.

The important part is what happens to the people who owned the initial parent company. If these initial owners end up owning 49% or more of the new parent company, some special rules apply. The new parent company is treated as if it owned the subsidiary for as long as the initial parent did. This matters for how tax losses are handled.

If the initial owners end up with 66% or more of the new parent company, even more special rules apply. In this case, the new parent is treated as if it owned the subsidiary for as long as the initial parent did, but this time it’s for rules about imputation credit accounts.

These rules are meant to help in situations where, without them, a company might not meet certain requirements. If a company would have met these requirements except for these special rules, they’re treated as if they did meet them.

If this reverse takeover happened before 3 April 2006, these rules only apply if the person filed a tax return before that date saying they met the requirements.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1523118.

Topics:

Money and consumer rights > Taxes

Business > Industry rules

YC 17: Demutualisation of insurers, or

“Rules for when an insurance company changes to a regular company structure”

YC 18B: Corporate reorganisations not affecting economic ownership, or

“Changes in company structure that don't affect who really owns the business”

Part Y Definitions and related matters
Measurement of company ownership

YC 18Reverse takeovers

Subsections (2) and (3) apply if—
a limited attribution company (the initial parent) is treated under section YC 11(3) as holding all ownership interests in another company (the subsidiary); and
a change in the ownership of the initial parent occurs, or the initial parent ends its existence on an amalgamation (the changeover); and
immediately after the changeover, another limited attribution company (the new parent) is treated under section YC 11(3) as holding all ownership interests in the subsidiary; and
immediately after the changeover, all or part of the ownership interests in the new parent are treated under section YC 11(3) as being held by persons (the initial owners) who were treated as holding ownership interests in the initial parent immediately before the changeover; and
in the case of each initial owner, the percentage ownership interest in the initial parent that the initial owner holds immediately before the changeover is the same as the percentage ownership interest in the new parent that the initial owner holds immediately after the changeover.

If the initial owners hold a total of 49% or more of the ownership interests in the new parent immediately after the changeover, the new parent is treated for the purposes of Part I (Treatment of tax losses) as—
holding, immediately after the changeover, the ownership interests in the subsidiary that the initial parent held immediately before the changeover; and
having held the ownership interests for the period for which the ownership interests were treated as held by the initial parent.

If the initial owners hold a total of 66% or more of the ownership interests in the new parent immediately after the changeover, the new parent is treated for the purposes of subparts OB and OP (which relate to imputation credit accounts) as—
holding, immediately after the changeover, the ownership interests in the subsidiary that the initial parent held immediately before the changeover; and
having held the ownership interests for the period for which the ownership interests were treated as held by the initial parent.

As the provisions of this section are intended to have concessionary effect, subsection (5) applies if—
at a time, for a company and a continuity provision, the requirements of the provision are not met; but
the requirements would have been met but for the application to a particular extent of subsections (2) and (3).

The requirements of the continuity provision are treated as met at the time.
Repealed
Subsections (2) and (3) apply for a person for a changeover occurring before 3 April 2006 only if, before that date, the person files a return of income on the basis that the requirements of a continuity provision are satisfied in relation to the company and the changeover.

Compare

2004 No 35 s OD 5AA

Notes

Section YC 18(3): amended, on 1 April 2017, by section 293 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section YC 18(6) heading: repealed (with effect on 1 April 2015), on 18 March 2019, pursuant to section 281 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section YC 18(6): repealed (with effect on 1 April 2015), on 18 March 2019, by section 281 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section YC 18 list of defined terms market value circumstance: repealed (with effect on 1 April 2008), on 6 October 2009, by section 569(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).