New Zealand: Proposal to reduce tax costs to shareholders

New Zealand: Reduce tax costs to shareholders

A proposal in New Zealand is intended to make it easier for companies to provide that their shareholders—particularly minority shareholders—are not “tax disadvantaged” when tax losses are offset and dividends paid.

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A company that uses tax losses of another company has fewer imputation credits because it pays less tax. This means that the shareholders pay more tax because their dividends cannot be fully imputed. The concern has been that this makes it more attractive to acquire 100% of a company to avoid this tax issue, but this may present a barrier to listings and more diverse shareholdings in New Zealand companies. 

The proposal is to allow the loss company to transfer imputation credits, up to the tax value of the loss offset amount, to the profit company. This would allow the profit company to add imputation credits to dividends it pays. In turn, this would allow full imputation of dividends to the extent any shortfall in imputation credits relates to use of loss offsets—a highly technical solution to a practical problem.

 

Read a September 2015 report [PDF 613 KB] prepared by the KPMG member firm in New Zealand: Proposal to reduce tax cost to shareholders welcome

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