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Tax: Discussion document released

Thursday 14 August 2008 Media Statement

Discussion document looks at streaming and refunding imputation credits

A discussion document released today seeks views on whether the law should allow limited streaming of imputation credits to those who can use them and refunds of credits for charities and other tax-exempt entities.

“The discussion document is the first step in a process of consultation on possible improvements to two important areas in the imputation rules of the Income Tax Act,” Finance Minister Michael Cullen and Revenue Minister Peter Dunne said today.

“Imputation credits are credits attached to dividends for income tax that has been paid by the company in which shares are held. New Zealand shareholders who pay tax in New Zealand can use imputation credits to offset their income tax.

“The focus of the discussion document is on those imputation credits that cannot be fully used under current law – either because the recipient is a foreign shareholder or because the recipient is a New Zealand organisation that is exempt from income tax.

“Our tax law does not permit ‘streaming’ of imputation credits, which means directing credits away from those who cannot use them to those who can. That is to protect the revenue base. Without anti-streaming rules, it would be easy, for example, to devise arrangements that resulted in foreign investors in New Zealand companies not paying tax in New Zealand on the income they derive here.

“For the same reason there is no question of allowing refunds of imputation credits to foreign shareholders in New Zealand companies. Doing so would effectively allow them to pay no tax on their New Zealand income.

“There are strong grounds for preventing streaming and possibly even for strengthening our anti-streaming rules. At the same time, the government would like to hear people’s views on whether the anti-streaming rules inhibit valid commercial transactions and whether streaming should be allowed in some circumstances.

“Similarly, the government is prepared to consider the case for refunding imputation credits to organisations that have a specific exemption from New Zealand income tax, such as registered charities.

“The discussion document seeks comment on whether the lack of refunds for imputation credits affects the type of investments that tax-exempt organisations make, whether refunds could be made to work in some circumstances, and what might be better alternatives to refunds.

“A very important influence on the outcome of this review is the possibility of our entering negotiations with Australia to establish a system of mutual recognition of imputation and franking credits for trans-Tasman investment. As announced last month, that question is now formally on the agenda, which is a very significant development. If mutual recognition does proceed, it would be sensible to make our anti-streaming rules as compatible as possible. This could obviously affect the outcome of this review.

“Even if mutual recognition were not to proceed, any moves to allow limited streaming in New Zealand would have to be discussed with Australia under our existing trans-Tasman imputation arrangements.

‘The questions raised in the discussion document will be of particular interest to shareholders, charitable organisations, tax professionals, fund managers and others who are interested in developing New Zealand’s capital markets. We urge them all to express their views on these important matters,” Dr Cullen and Mr Dunne said.

The discussion document, “Streaming and refundability of imputation credits”, is available at The closing date for submissions is 10 October.


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