CB 32C Dividend income for first year of look-through company
When this section applies

(1)

This section applies for an income year when, in the income year, the person has—

(a)

an effective look-through interest for a look-through company (LTC) on the first day of that year, and the company existed in the previous income year, but was not a look-through company in that previous year:

(b)

an effective look-through interest for a look-through company on the day after the LTC amalgamates in that year with a company that ceases to exist after the amalgamation (the amalgamating company), and the amalgamating company was not a look-through company immediately before the amalgamation.

Income

(2)

The person has an amount of income under—

(a)

subsection (4); or

(b)

subsection (8), if—

(i)

the relevant LTC was a qualifying company in the relevant previous year; and

(ii)

a dividend under subsection (4) would not be fully imputed.

Dividend

(3)

An amount of income under subsection (4) or (8) is treated as a dividend including an attached imputation credit, as provided by the relevant subsection.

Formula

(4)

For the purposes of subsection (2)(a), the amount of income is a positive amount calculated using the formula—

(untaxed reserves + reserves imputation credit) × effective interest.

Definition of items in formula

(5)

In the formula in subsection (4),—

(a)

untaxed reserves is the amount given by the formula in subsection (6):

(b)

reserves imputation credit is the total amount given by the formula in subsection (7B), up to the maximum permitted ratio for the untaxed reserves under section OA 18 (Calculation of maximum permitted ratios) and is treated as an attached imputation credit included in the dividend calculated under this section:

(c)

effective interest is the person’s effective look-through interest for an LTC on the relevant day under subsection (1)(a) or (b).

Formula

(6)

For the purposes of subsection (5)(a), the amount of untaxed reserves is calculated using the formula—

dividends – assessable income – exit exemption.

Definition of items in formula

(7)

In the formula in subsection (6),—

(a)

dividends is the sum of the amounts that would be dividends if the following events occurred for the company or the amalgamating company (the company), immediately before it became an LTC or amalgamated with an LTC:

(i)

it disposed of all of its property, other than cash, to an unrelated person at market value for cash; and

(ii)

it met all of its liabilities at market value, including income tax liabilities for the disposal year but excluding income tax liabilities that would arise solely from meeting all of its liabilities at market value or from disposing of all of its property; and

(iii)

it was liquidated, with the amount of cash remaining being distributed to shareholders without imputation credits attached:

(b)

assessable income is the total assessable income that the company would derive by taking the actions described in paragraph (a)(i) and (ii) less the amount of any deduction that the company would have for taking those actions:

(c)

exit exemption is the amount given by the formula in section CX 63(2) (Dividends derived after ceased to be look-through company), treating the amount described in paragraph (a) as a dividend paid by the company for the purposes of section CX 63(1), if section CX 63 would apply to a dividend paid by the company.

Formula

(7B)

For the purposes of subsection (5)(b), the amount of reserves imputation credit is calculated using the formula—

current credits + future amounts.

Definition of items in formula

(7C)

In the formula in subsection (7B),—

(a)

current credits is the amount of the balance in the company’s imputation credit account on the relevant day:

(b)

future amounts is an amount of income tax payable for an earlier income year but not paid on or before the relevant day, less refunds due for the earlier income year but paid after the relevant day.

Formula

(8)

For the purposes of subsection (2)(b), the amount of income is a positive amount calculated using the formula—

((balances ÷ tax rate – balances) + balances imputation credit) × effective interest.

Definition of items in formula

(9)

In the formula in subsection (8),—

(a)

balances is the sum of the following amounts:

(i)

the balance in the company’s imputation credit account on the relevant day:

(ii)

an amount of income tax payable for an earlier income year but not paid on or before the relevant day, less refunds due for the earlier income year but paid after the relevant day:

(b)

tax rate is the basic tax rate for the income year of the company that contains the relevant day described in subsection (10):

(c)

balances imputation credit is the amount of the item balances in paragraph (a), and is treated as an attached imputation credit included in the dividend calculated under this section:

(d)

effective interest is the person’s effective look-through interest for an LTC on the relevant day under subsection (1)(a) or (b).

Relevant day

(10)

In this section, the relevant day for measuring relevant items in the formulas is—

(a)

the last day of the income year before the income year described in subsection (1)(a), as applicable; or

(b)

the day of the amalgamation described in subsection (1)(b), as applicable.

Income tax and refund

(11)

For the purposes of subsections (7C)(b) and (9)(a)(ii),—

(a)

income tax payable is income tax that would, when paid, give rise to a credit in the company’s imputation credit account under sections OB 4 to OB 29 (which relate to imputation credits):

(b)

a refund of income tax due is the amount that would, when paid, give rise to a debit to the company’s imputation credit account under sections OB 30 to OB 59 (which relate to imputation debits).

Defined in this Act: amalgamating company, amalgamation, amount, assessable income, basic tax rate, company, deduction, dispose, dividend, effective look-through interest, fully imputed, imputation credit, imputation credit account, income, income tax, income year, liquidation, look-through company, qualifying company

Section CB 32C: replaced, on 1 April 2017 (applying for the 2017–18 and later income years), by section 14(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).

Section CB 32C(5)(b): replaced, on 29 March 2018 (with effect on 1 April 2017 and applying for the 2017–18 and later income years), by section 8(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).

Section CB 32C(7)(a)(ii): replaced, on 29 March 2018 (with effect on 1 April 2017 and applying for the 2017–18 and later income years), by section 8(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).

Section CB 32C(7B) heading: inserted, on 29 March 2018 (with effect on 1 April 2017 and applying for the 2017–18 and later income years), by section 8(3) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).

Section CB 32C(7B): inserted, on 29 March 2018 (with effect on 1 April 2017 and applying for the 2017–18 and later income years), by section 8(3) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).

Section CB 32C(7C) heading: inserted, on 29 March 2018 (with effect on 1 April 2017 and applying for the 2017–18 and later income years), by section 8(3) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).

Section CB 32C(7C): inserted, on 29 March 2018 (with effect on 1 April 2017 and applying for the 2017–18 and later income years), by section 8(3) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).

Section CB 32C(9)(a)(i): amended, on 29 March 2018 (with effect on 1 April 2017 and applying for the 2017–18 and later income years), by section 8(4)(a) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).

Section CB 32C(9)(a)(ii): amended, on 29 March 2018 (with effect on 1 April 2017 and applying for the 2017–18 and later income years), by section 8(4)(b) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).

Section CB 32C(10): amended, on 29 March 2018 (with effect on 1 April 2017 and applying for the 2017–18 and later income years), by section 8(5) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).

Section CB 32C(11): amended, on 29 March 2018 (with effect on 1 April 2017 and applying for the 2017–18 and later income years), by section 8(6) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).