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Technical tax area Ngā tūmomo whakataunga me ngā aratohu

The imputation rules have been amended to extend the circumstances when tax overpaid before a breach in shareholder continuity can be refunded.

Section ME 1 of the Income Tax Act 2004

Section ME 1(2)(b) has been amended to clarify that companies (other than Australian imputation credit account companies) cannot maintain an imputation credit account if they are treated as not being resident in New Zealand under a double tax agreement.

Background

Previously, section ME 1(2)(b) provided that a company must not establish and maintain an imputation credit account if it was resident in New Zealand but not subject to tax on all or part of its income under a double tax agreement when it was, for the purposes of that agreement, treated as not being a resident of New Zealand.

There was a risk that the reference to the company being "not subject to tax in respect of all or part of its income under a double tax agreement" could have been interpreted as narrowing the circumstances in which a company was prevented from maintaining an imputation credit account. A company that was treated as being not resident in New Zealand under a double tax agreement, but that did not actually have any income that was exempted from tax as a result, may have considered itself outside the scope of section ME 1(2)(b).

Key features

The amended version of section ME 1(2)(b) puts beyond doubt that this provision applies to all resident companies treated as not being resident under a double tax agreement, irrespective of whether they have income that is exempted from tax as a result. The drafting of this provision is now more closely aligned with that of equivalent provisions elsewhere in the Act.