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Income Tax Act 2007

Recharacterisation of certain transactions - Emigration of resident companies

FL 3: Treatment of companies that start being treated as non-resident and their shareholders

You could also call this:

“Rules for companies becoming non-resident and their shareholders' tax responsibilities”

This law applies to companies in New Zealand that start being treated as non-resident under a double tax agreement (DTA) on or after 30 August 2022. It explains what happens to these companies and their shareholders in certain situations.

If the company claims tax relief based on non-resident status, actually becomes non-resident, or has been treated as non-resident for two years, some special rules apply.

Just before the company is treated as non-resident, it’s considered to have sold and bought back all its property at market value. It’s also treated as if it paid out all its available money to shareholders, as if it was closing down.

At the same time, the company’s shareholders are treated as if they received their share of the company’s money, as if the company was closing down.

Any income the company makes from this pretend sale is counted in the tax year when the first of those special situations happens.

The pretend dividend paid to shareholders is also counted in the tax year when the first of those special situations happens.

This law overrides section CD 1(2) of the Income Tax Act 2007, which is about dividends.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=LMS835743.

Topics:
Money and consumer rights > Taxes
Business > Industry rules
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Part F Recharacterisation of certain transactions
Emigration of resident companies

FL 3Treatment of companies that start being treated as non-resident and their shareholders

  1. This section applies in relation to a New Zealand resident company that, on or after 30 August 2022, starts being treated under a double tax agreement (the DTA) as not being a New Zealand resident if, after the company starts being treated under the DTA as not being a New Zealand resident, 1 or more of the following events occur:

  2. the company takes a tax position in a return of income that is consistent with relief from New Zealand tax being available under the DTA for an amount of income derived by the company on the basis that the company is treated under the DTA as not being a New Zealand resident:
    1. the company becomes a non-resident:
      1. the company has been treated under the DTA as not being a New Zealand resident for a continuous period of 2 years starting on the day on which it receives a competent authority determination that it is treated under the DTA as not being a New Zealand resident.

        1. Immediately before the company starts being treated under the DTA as not being a New Zealand resident, the company is treated as—

        2. disposing of its property to a person, and reacquiring the property from the person, for consideration equal to the market value of the property at the time; and
          1. making a distribution in money as a dividend to its shareholders at the time of an amount that would be available for distribution at the time if the company were treated as going into liquidation.

            1. Immediately before the company starts being treated under the DTA as not being a New Zealand resident, each shareholder of the company at the time is treated as being paid a distribution in money as a dividend of the amount the shareholder would be entitled to at the time if the company were treated as going into liquidation.

            2. An amount of income derived by the company from a deemed disposal under subsection (2) is allocated to the income year of the company in which the earliest of the events described in subsection (1)(a) to (c) occurs.

            3. A dividend that a shareholder of the company at the time referred to in subsection (3) is treated as being paid under that subsection is allocated to the income year of the shareholder in which the earliest of the events described in subsection (1)(a) to (c) occurs.

            4. This section overrides section CD 1(2) (Dividend).

            Notes
            • Section FL 3: inserted (with effect on 30 August 2022), on , by section 69 of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).