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Income Tax Act 2007

Income - Income from equity

CD 34B: Distributions to members of co-operative companies

You could also call this:

“How co-operative companies can give tax-free distributions to trading members”

You can receive a distribution from a co-operative company or its subsidiary without it being taxed as a dividend. This applies if the company has told the tax office they want to use this rule. The distribution must be for shares you use for trading with the company or shares you expect to use for future trading.

To qualify, the co-operative company and the company making the distribution must be based in New Zealand. You also need to live in New Zealand or have a fixed place of business here.

The number of shares you have should match the value of your trading with the company. You can have some extra shares (up to 20% more) that aren’t tied to specific trades.

This rule doesn’t apply if you or other members can hold shares that aren’t connected to trading and could be used for other transactions with the company.

The company can set the date for giving out these distributions differently from the usual rules for companies. They need to tell the Companies Office about this and set the date within the year the distribution is for.

There’s a special rule for Fonterra shareholders from 2022 to 2025 that this doesn’t apply to.

Trading in this context means buying and selling goods (but not services or intangible things) between you and the co-operative company or its subsidiary.

This text is automatically generated. It might be out of date or be missing some parts. Find out more about how we do this.

View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM3226706.

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Part C Income
Income from equity

CD 34BDistributions to members of co-operative companies

  1. This section applies to a distribution by a co-operative company, or by a company (a subsidiary) in which the co-operative company has a voting interest of 100%, if—

  2. the distribution is made after the co-operative company has notified the Commissioner that they have elected to apply this section; and
    1. the election has not been revoked.

      1. Despite subsection (1), this section does not apply to a distribution to which section CZ 41 (Distributions to supplying shareholders of Fonterra: 2022–23 to 2024–25 income years) applies.

      2. If the requirements in subsection (4) are met, a distribution by a co-operative company, or by a subsidiary, to a member of the co-operative company is not a dividend, to the extent to which the distribution is for their—

      3. transaction shares:
        1. projected transactions shareholding:
          1. limited non-transaction shares.

            1. Subsection (2)(c) is ignored,—

            2. for a distribution to a member, if the member holds shares in the co-operative company that—
              1. are not transaction shares, are not their projected transactions shareholding, and are not limited non-transaction shares; and
                1. may entitle members to enter trading transactions:
                2. for all distributions to all members, if the constitution of the co-operative company permits any member to hold shares that—
                  1. are not transaction shares, are not their projected transaction shareholding, and are not limited non-transaction shares; and
                    1. may entitle members to enter trading transactions.

                    2. For the purposes of subsection (2), the requirements are—

                    3. the co-operative company is resident in New Zealand for the period to which the distribution relates; and
                      1. the company making the distribution is resident in New Zealand for the period to which the distribution relates; and
                        1. the co-operative company believes on reasonable grounds that the member at the time of the distribution—
                          1. is resident in New Zealand:
                            1. has a fixed establishment in New Zealand.

                            2. In this section, transaction shares means the number of shares in the co-operative company that the member holds for trading transactions that occurred in the period to which the distribution relates. The number of shares must determine the value of the trading transactions.

                            3. In this section, limited non-transaction shares means the member's shares that are not the member's transaction shares or their projected transactions shareholding, and that may entitle the member to enter trading transactions, if the number of those shares is less than or equal to the greater of the following:

                            4. 20% of the member's transaction shares on the date of entitlement for the distribution under section 125 of the Companies Act 1993:
                              1. 20% of the member's projected transactions shareholding on the date of entitlement for the distribution under section 125 of that Act.

                                1. In this section, projected transactions shareholding means the number of shares in the co-operative company that the member would have had to hold if the trading transactions actually had occurred that the member had projected, using reasonable assumptions, would occur in the period to which the distribution relates. The number of shares must determine the value of the trading transactions.

                                2. In this section, trading transactions means transactions between the member and the co-operative company or subsidiary that are—

                                3. the disposal and acquisition of trading stock of the vendor that is not intangible property; and
                                  1. not subject to section CB 2 (Amounts received on disposal of business assets that include trading stock).

                                    1. The 20 working day rule for fixing a date in section 125(2) of the Companies Act 1993 does not apply to members' entitlements to receive distributions that are for transaction shares, projected transaction shareholdings, limited non-transaction shares, or shares described in subsection (3), if—

                                    2. the co-operative company or the subsidiary, as the case may be, has given a copy of the election described in subsection (1) to the Registrar of Companies before the relevant distributions are paid; and
                                      1. for the purposes of section 125(1) of the Companies Act 1993, the co-operative company or the subsidiary, as the case may be, fixes a date in relation to members' entitlements to receive distributions before the entitlements arise, and that date is within the year or period to which the distributions relate.

                                        Notes
                                        • Section CD 34B: inserted (with effect on 1 April 2010), on , by section 9 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
                                        • Section CD 34B(1)(a): replaced, on , by section 7(1) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
                                        • Section CD 34B(1B) heading: inserted (with effect on 1 July 2022), on , by section 14 of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
                                        • Section CD 34B(1B): inserted (with effect on 1 July 2022), on , by section 14 of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
                                        • Section CD 34B(8)(a): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on , by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                                        • Section CD 34B list of defined terms notify: inserted, on , by section 7(2) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).