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Income Tax Act 2007

Memorandum accounts - Imputation credit accounts (ICA)

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

You could also call this:

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

When an Imputation Credit Account (ICA) company joins a new wholly-owned group from another group, there are rules about how it can use its tax refund entitlements. These rules apply if the ICA company has transferred imputation credits to a company in its former group (if that group wasn’t wholly-owned) and if it isn’t liable for extra imputation tax.

The amount that’s affected by these rules is called the ‘restricted refund amount’. It’s calculated by subtracting the ICA company’s imputation credit balance from its refund entitlement when it joins the new group.

If this restricted amount is more than the company’s entitled tax refund, the company must pay the extra to the Commissioner, who will hold it as if it were a refund the company was entitled to.

The Commissioner will hold the restricted refund amount for the ICA company and its new group. There are strict rules about when this money can be refunded or used to pay tax. These rules depend on whether the former group was wholly-owned or not.

For a former wholly-owned group, the restricted amount can only be refunded for imputation credits that come from tax paid by the ICA company or a company that was in both the former and new groups. It can also be refunded for credits attached to dividends received by such companies.

For a former group that wasn’t wholly-owned, there are similar rules, but they also allow refunds for credits transferred to the ICA company by a company in the former group.

The restricted amount can be used to pay tax for the ICA company or for a company that was in both the former and new groups.

These restrictions are on top of other rules about refunds and paying tax liabilities.

The restricted refund amount gets smaller when it’s used for allowed refunds, tax payments, or payments of extra imputation tax.

If there’s a big change in who owns the ICA company after it joins the new group, the company might have to pay extra imputation tax equal to the restricted refund amount.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM3242442.

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Part O Memorandum accounts
Imputation credit accounts (ICA)

OB 72BLimit on using entitlement to refund after joining wholly-owned group

  1. This section applies when—

  2. an ICA company joins a wholly-owned group of companies (the new group) from another group of companies (the former group); and
    1. if the former group is not a wholly-owned group of companies, the ICA company has transferred imputation credits under section OB 83 to a company in the former group; and
      1. the ICA company is not liable for imputation additional tax under section OB 72(5).

        1. Subsections (3) to (8) apply to an amount (the restricted refund amount) for the ICA company and the new group that is greater than zero and calculated using the formula—

          refund amount − ICA credit balance.

          Where:

          • In the formula,—

          • refund amount is the total of the following amounts, determined immediately before the ICA company joins the new group:
            1. the amount in the tax pooling account provided by or for the benefit of the ICA 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 ICA 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 subsection (5) for the company and another group:
              2. ICA credit balance is the credit balance of the ICA company's imputation credit account immediately before the company joins the new group.

                1. If the restricted refund amount is greater than the amount referred to in subsection (3)(a)(ii), the ICA company must pay to the Commissioner an amount equal to the excess and the Commissioner must hold the amount with the balance of the restricted refund amount as if the excess were a refund to which the company were entitled under section RM 2 (Refunds for overpaid tax).

                2. If the former group is a wholly-owned group of companies, the Commissioner must hold the restricted refund amount for the ICA company and the new group subject to the restriction that the amount—

                3. may be refunded for an imputation credit only if the ICA company satisfies the Commissioner that the credit—
                  1. arises from taxation paid by the ICA company or by a company that is in the same wholly-owned group as the ICA company and was in the former group immediately before the ICA company joined the new group:
                    1. is attached to a dividend received in relation to a shareholding by the ICA company or by a company that is in the same wholly-owned group as the ICA company and was in the former group immediately before the ICA company joined the new group and had the shareholding then; and
                    2. may be used to satisfy a tax liability referred to in subsection (5C).

                      1. If the former group is not a wholly-owned group of companies, the Commissioner must hold the restricted refund amount for the ICA company and the new group subject to the restriction that the amount—

                      2. may be refunded for an imputation credit if—
                        1. the credit was transferred to the ICA company by a company that was in the former group when the ICA company was in the former group:
                          1. the credit arises from taxation paid by the ICA company or by a company that is in the new group and was in the former group immediately before the ICA company joined the new group:
                            1. the credit is attached to a dividend received in relation to a shareholding by the ICA company or by a company that is in the new group and was in the former group immediately before the ICA company joined the new group; and
                            2. may be used to satisfy a tax liability referred to in subsection (5C).

                              1. A tax liability referred to in subsection (5) or (5B) is a tax liability of—

                              2. the ICA company:
                                1. a company (the member) that is in the new group with the ICA company, if the ICA company satisfies the Commissioner that the member was in the former group immediately before the ICA company joined the new group.

                                  1. The restriction imposed by subsection (5) or (5B) on the use of a restricted refund amount is in addition to the requirements under other provisions of the Act for a refund or the satisfaction of a tax liability from an amount to which the ICA company is entitled under sections RM 2, RM 4, and RM 5.

                                  2. The restricted refund amount for the ICA company and a group is reduced by the amount of—

                                  3. a refund permitted under subsection (5)(a) or (5B)(a) relating to the restricted refund amount:
                                    1. a satisfaction of a tax liability permitted by subsection (5)(b) or (5B)(b) relating to the restricted refund amount:
                                      1. a payment of imputation additional tax under subsection (8) relating to the restricted refund amount:
                                        1. a payment of imputation additional tax under section OB 71(4) relating to the restricted refund amount.

                                          1. The ICA company is liable for an amount of imputation additional tax equal to the restricted refund amount for the company and a wholly-owned group of companies (the old group) determined immediately after a change in the holding of voting interests in the ICA company if, immediately after the change, a group of people hold common voting interests in the ICA company that exceed, by 67% or more, the common voting interests—

                                          2. in the group of companies to which the company belonged immediately before the company joined the old group; and
                                            1. that were held by the same people immediately before the company joined the old group.

                                              Notes
                                              • Section OB 72B: inserted (with effect on 1 March 2010), on , by section 102 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
                                              • Section OB 72B(1)(a): amended (with effect on 1 October 2016), on , by section 209(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                                              • Section OB 72B(1)(ab): inserted (with effect on 1 October 2016), on , by section 209(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                                              • Section OB 72B(3)(a)(ii): amended (with effect on 1 April 2013), on , by section 82(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
                                              • Section OB 72B(5) heading: replaced (with effect on 1 October 2016), on , by section 209(3) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                                              • Section OB 72B(5): amended (with effect on 1 October 2016), on , by section 209(4) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                                              • Section OB 72B(5)(b): replaced (with effect on 1 October 2016), on , by section 209(5) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                                              • Section OB 72B(5B) heading: inserted (with effect on 1 October 2016), on , by section 209(6) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                                              • Section OB 72B(5B): inserted (with effect on 1 October 2016), on , by section 209(6) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                                              • Section OB 72B(5C) heading: inserted (with effect on 1 October 2016), on , by section 209(6) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                                              • Section OB 72B(5C): inserted (with effect on 1 October 2016), on , by section 209(6) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                                              • Section OB 72B(6): amended (with effect on 1 October 2016), on , by section 209(7) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                                              • Section OB 72B(6): amended (with effect on 1 April 2013), on , by section 82(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
                                              • Section OB 72B(7)(a): amended (with effect on 1 October 2016), on , by section 209(8)(a) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                                              • Section OB 72B(7)(b): amended (with effect on 1 October 2016), on , by section 209(8)(b) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                                              • Section OB 72B(8)(a): amended (with effect on 1 October 2016), on , by section 209(9) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).