Plain language law

New Zealand law explained for everyone

Income Tax Act 2007

Deductions - Expenditure specific to certain entities

DV 18B: Cost base for shares when debt remitted within economic group

You could also call this:

“Calculating share cost when company debts are forgiven”

When you own shares in a company that is considered a calculation company, some of the money used to buy those shares might come from a special source. This source is called the subscriptions amount. The amount you can count as money spent on buying your shares has a limit. To figure out this limit, you need to do a simple calculation.

First, you take the subscriptions amount for the company. Then, you multiply it by either:

  1. The percentage of voting power you have in the company, or
  2. The percentage of the company’s value that your shares represent, if the company’s value is important in this case.

You use whichever of these two percentages applies to you. This calculation gives you the maximum amount you can say you spent on buying your shares in the company.

This rule helps determine how much you’ve invested in the company when some debts within the company’s group have been forgiven.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM7216679.

Topics:
Money and consumer rights > Taxes
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Part D Deductions
Expenditure specific to certain entities

DV 18BCost base for shares when debt remitted within economic group

  1. For a shareholder of a company that is a calculation company under section CD 43(6B) or (6C) (Available subscribed capital (ASC) amount), an amount of the subscriptions amount under section CD 43(6D) for the calculation company is treated as expenditure incurred for the purchase of the shareholder’s shares in the calculation company. The maximum expenditure for the shareholder’s shares is the subscriptions amount under section CD 43(6D) for the calculation company multiplied by one of the following interests, determined before the application of section YC 4 (Look-through rule for corporate shareholders):

  2. the shareholder’s voting interests in the calculation company; or
    1. the shareholder’s market value interest in the calculation company, if there is a market value circumstance.

      Notes
      • Section DV 18B: inserted (with effect on 1 April 2008), on , by section 51(1) (and see section 51(2)) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
      • Section DV 18B heading: amended (with effect on 1 April 2008), on , by section 77 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).