Plain language law

New Zealand law explained for everyone

Income Tax Act 2007

Income - Income from equity

CD 29B: Issues to shareholders of rights to subscribe for or sell back shares

You could also call this:

“Rights to buy or sell back company shares aren't counted as dividends”

When a company gives you a right to buy a share or sell a share back to the company, this is not counted as a dividend. This means you don’t have to pay tax on it as income.

If you get a chance to buy a share for less than what it’s worth, this isn’t a dividend either. But this only applies if you got this chance because you already owned shares in the company, and if the company doesn’t let you sell the new share back to them right away.

Sometimes, a company might give you a right to buy or sell a share at a certain price, but you can’t or don’t use this right. If someone else then pays the company more than that price for your right or for a share, and the company gives you some of this extra money, it’s not always a dividend. It’s only not a dividend if the money doesn’t increase the company’s available subscribed capital.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM5490825.

Topics:
Money and consumer rights > Taxes
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CD 29: Non-taxable bonus issues, or

“Free extra shares from a company that you don't pay tax on”

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CD 29C: Transfers to shareholders by ASX-listed Australian company of shares in subsidiary, or

“Australian company giving shares in its subsidiary to shareholders may not be taxed as a dividend”

Part C Income
Income from equity

CD 29BIssues to shareholders of rights to subscribe for or sell back shares

  1. The issue by a company to a shareholder of a right to subscribe for a share, or to sell or otherwise dispose of a share in the company to the company, is not a dividend.

  2. The issue by a company of a share to a person for consideration less than the market value, immediately before the issue, of a share in the same class of shares, is not a dividend if—

  3. the person subscribes for the share under a right (a subscription right) issued by the company to a shareholder holding shares before the issue of the right; and
    1. the company does not, as part of the issue of the subscription right, give the person a right to dispose of the share to the company.

      1. A distribution by a company to a shareholder is not a dividend if—

      2. the company issues to the shareholder a right (the shareholder right) to subscribe for, or dispose of to the company, a share in the company at a given price (the shareholder price); and
        1. the shareholder fails or is ineligible to exercise the shareholder right; and
          1. another person pays to the company an amount—
            1. for the shareholder right:
              1. greater than the shareholder price, for the issue of a share under the shareholder right; and
              2. the distribution is from the amount of the payment that does not increase the company's available subscribed capital.

                Notes
                • Section CD 29B: inserted (with effect on 1 April 2008 and applying for the 2008–09 and later tax years), on , by section 8(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
                • Section CD 29B(1): 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).