Other Company Tax Issues

Imputation of Dividends
A full imputation law was introduced from 1 April 1988. This law was designed to do away with the past problems of double taxation where corporate earnings were taxed when distributed to shareholders and taxed again when the shareholders declared them in their personal tax returns.

The concept of imputation is covered more fully elsewhere.

Bonus Issues
A bonus issue is the issue of shares in the company or the giving of credit in respect of or forgiveness of whole or part of the amount unpaid on any shares in the company held by a shareholder.

The bonus issue occurs where the company receives no consideration for the issue other than an election by the shareholder not to receive money or money’s worth as an alternative to the issue.

Any company that makes a bonus issue in any year has to provide the IRD with a statement showing the particulars of every bonus issue made in that year and this must be filed within the time the company is required to file its income tax return.

Bonus issues are either taxable or non-taxable. A taxable bonus issue is deemed to be a dividend for tax purposes. A taxable bonus issue is defined as any bonus issue made in lieu of any bonus issues where the company elects that the issue will be a taxable issue (i.e. the issuing company elects that the bonus issue will be a dividend for tax purposes).

A non-taxable bonus issue is a bonus issue which the company has elected shall not be treated as a dividend.

Employee Share Purchase Schemes
The Act provides a deduction for 10% notional interest on financial assistance and is provided by an employer for a scheme that is approved by the commissioner and which has the following features:

  • Shares offered to employees must be fully paid and rank equally with all existing ordinary voting shares.

  • Every full time employee has to be eligible to participate in the scheme.

  • Any minimum period of service with the company required before an employee can participate must not exceed 3 years.

  • The cost of the shares to employees must not exceed the market price at the date of purchase or subscription.

  • The shares cannot be dealt with by an employee for a period of at least three years to a maximum of five year from the date of purchase or subscription.

  • Shares acquired by an employee under the scheme cannot be for consideration of greater than $2,340 in any three year period.

  • The company cannot lend an employee more than $2,340 in total in any three year period under the scheme.

  • Loans to the employees for the purpose of buying the shares must be interest free and they won't be caught under the fringe benefit.

  • At the end of the restrictive period the shares must be transferred to the employee or purchased by the trustees at the employee’s option for a price not exceeding the cost.

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Some content was obtained from the IRD and incl without change to ensure total accuracy and compliance with current law.