Income Tax Act 2007

CD 25 Treasury stock acquisitions

• Treasury stock generally

  (1) An amount paid by a company in acquiring any of its shares is not a dividend if—

  • (a) the acquisition is treated as not resulting in the cancellation of the share, under section 67A(1) of the Companies Act 1993 or section 24 of the Co-operative Companies Act 1996 (each of which relates to treasury stock); and

  • (b) the acquisition is not part of a pro rata cancellation or something that is in substance a pro rata cancellation.

  Reversion to on-market cancellation treatment

  (2) Subsections (4) to (6) apply in the case of an acquisition of a share to which subsection (1) or section CD 17(1) of the Income Tax Act 2004 or section CF 3(1)(d) or (da) of the Income Tax Act 1994 applies if,—

  • (a) before the first anniversary of the acquisition, the company cancels the share; or

  • (b) at the first anniversary, the company has failed to transfer a share of the same class in an arm’s length transfer, except if the company is established under New Zealand co-operative company legislation; or

  • (c) after the first anniversary, the company, which is established under New Zealand co-operative company legislation, cancels the share.

  Requirement for arm’s length transfers

  (3) When subsection (2)(b) is applied,—

  • (a) a transfer is arm’s length only if it is—

    • (i) to a person not associated with the company; or

    • (ii) in a transaction that occurs on a recognised exchange, through a broker or some other agent independent of the company, and that is not preceded by any arrangement between the transferee and the company for the transfer; and

  • (b) each arm’s length transfer of a share is taken into account only in relation to a single share acquisition to which subsection (1) has applied.

  Reduction of available subscribed capital

  (4) If subsection (2) applies, then, with effect from the cancellation or the first anniversary, depending on which first causes subsection (2) to apply, the available subscribed capital of the class of the share is reduced by the lesser of—

  • (a) the amount paid to the shareholder on the acquisition; and

  • (b) the available subscribed capital per share calculated under the ordering rule and, in the case of the first anniversary, calculated as if the share and any other shares to which this subsection applies on that date were cancelled on that date.

  Imputation credit account debit

  (5) If subsection (2) applies, then, with effect from the date of the acquisition by the company, section OB 42 (ICA on-market cancellation) applies as if the original acquisition were an on-market cancellation but item “ASC per share excess” of the formula in section OB 42 were equal to only the excess of the amount received by the shareholder over the reduction described in subsection (4).

  Relief from imputation penalty tax

  (6) No imputation penalty tax is imposed under section 140B of the Tax Administration Act 1994 (nor any late payment penalty imposed under that Act in relation to the imputation penalty tax) if it would not have arisen had subsection (5) applied only with effect from the date of cancellation or first anniversary, depending on which first causes subsection (2) to apply.

  Defined in this Act: agent, amount, arrangement, associated person, available subscribed capital, cancellation, company, co-operative company, dividend, imputation credit account, imputation penalty tax, New Zealand, on-market cancellation, ordering rule, pay, pro rata cancellation, recognised exchange, share, shareholder

  Compare: 2004 No 35 s CD 17

  Section CD 25(4): substituted (with effect on 1 April 2008), on 6 October 2009, by section 16(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).