This information is for New Zealand (NZ) companies only.
Here we provide an overview of the Trans-Tasman imputation rules, which allow a NZ company to:
- choose to enter the Australian imputation system
- maintain an Australian franking account
- attach Australian franking credits to dividends it pays.
See also
- Taxation Laws Amendment Act (No. 6) 2003External Link
- For Australian companies: Details are available from the New Zealand Inland Revenue Department website ird.govt.nzExternal Link.
How it works
A NZ resident company gives notice to us that it wishes to be part of the Australian imputation system (making a franking choice).
A NZ company that makes this choice will be known as a NZ franking company.
Generally, that company will be subject to Australian imputation rules as they apply to an Australian company.
However, there are special rules for a NZ company to ensure the Australian imputation rules operate appropriately and to preserve the integrity of the Australian imputation system.
How does a NZ resident company make a franking choice?
Lodge a Trans-Tasman imputation election form with us at least one month before making any franked distributions.
Generally, the choice comes into force at the start of the company's income year in which the notice is given to us. This will allow credits to arise in the franking account from the start of the income year.
If the NZ company does not have an Australian tax file number (TFN) this will be issued by us.
When will a franking choice apply?
A NZ company can choose to maintain an Australian franking account from 1 April of a particular year. To do this, they must make a franking choice by the end of the income year following the income year which includes 1 April of that year.
In later income years, the franking choice will generally be in force from the start of the income year in which the franking choice is made. Unless we have previously approved some other accounting period, the start of the income year for the NZ company will be 1 July.
A NZ franking company can only start to frank a distribution with Australian franking credits one month after it has made the franking choice.
See also
The Australian imputation system rules
There are special rules for a NZ company to ensure the Australian imputation rules operate appropriately and to preserve the integrity of the Australian imputation system.
- Franking accounts
- Franking deficits tax
- Franking a distribution
- Distribution statements
- The benchmark rule
- Franking periods
- Franking returns
- Anti-streaming and franking credit trading rules
- Exempting entities
- A group includes a non-Tasman company
- Joint and several liability
Franking accounts
The Australian franking account operates on a tax-paid basis, which means if a company pays $30 of Australian tax it generates a credit of $30 in its franking account.
A NZ franking company will be required to keep its franking account in Australian currency.
Typically, a franking credit would arise when the NZ franking company:
- pays Australian income tax, or
- receives a franked dividend, or
- pays Australian dividend, interest or royalty withholding tax.
Franking debits typically arise when a NZ franking company:
- pays a dividend with Australian franking credits attached, or
- receives a refund of tax.
Franking deficits tax
If a NZ franking company's franking account is in deficit at the end of the income year, it will be liable to franking deficits tax.
Franking a distribution
A NZ franking company franks a distribution by allocating franking credits to it.
Only distributions that are frankable can have franking credits allocated to them. This may require a consideration of the Australian debt and equity rules.
Frankable distributions can only be franked to the maximum franking credit amount. There are formulas for calculating the maximum franking credit for a distribution.
Conduit tax relief additional dividends and supplementary dividends paid by NZ franking companies will be unfrankable.
A NZ franking company will be able to attach both Australian franking credits and NZ imputation credits to the same dividend.
See also
Distribution statements
When a NZ franking company makes a distribution to its members it must include a distribution statement with the payment.
See also
The benchmark rule
All frankable distributions must be franked to the same extent within a given franking period.
This achieves a similar effect to the NZ dividend benchmark rule.
It is designed to ensure that one member of a corporate tax entity is not preferred over another.
If a distribution is franked over the benchmark franking percentage the franking entity will be liable to pay overfranking tax.
If a distribution is franked below the benchmark franking percentage the franking entity will be required to debit its franking account with an underfranking penalty debit.
If the benchmark franking percentage varies excessively between franking periods, the franking entity is required to make a disclosure to us.
See also
Franking periods
The imputation rules generally apply in relation to a NZ franking company's income year.
The benchmark rule applies to distributions made within the same franking period.
If the NZ franking company is a private company, its franking period will be the same as its income year.
If the NZ franking company is a public company, it will generally have the following franking periods:
- the six-month period commencing at the start of its income year and
- the remainder of its income year.
Franking returns
An annual franking return is not automatically required.
A franking return will generally only be required when there is a liability to franking deficits tax, or overfranking tax, or where the company has triggered the disclosure rule.
Anti-streaming and franking credit trading rules
There are anti-streaming and franking credit trading rules that apply to maintain the integrity of the imputation system.
See also
Exempting entities
Companies that are less than 5% effectively owned by non-exempt Australian residents are prevented from conveying franking benefits to Australian resident shareholders. These companies are called exempting entities.
Changes are made to exempting entity rules to allow a NZ franking company to be 'looked through' to find effective Australian ownership. Therefore, NZ franking companies will not automatically be treated as exempting entities.
A NZ listed company that is a NZ franking company, along with its Australian or NZ fully-owned subsidiaries will also not be treated as exempting entities.
In cases of wholly-owned groups that include a company that is not resident in Australia or NZ, if the NZ parent company is a NZ franking company and is not treated as an exempting entity, none of the companies in that wholly owned group will be an exempting entity.
A group includes a non-Tasman company
When a wholly-owned group includes a company that is not resident in Australia or NZ, special rules apply to the franking account.
Generally, franking debits or credits that would otherwise arise in the franking account of the subsidiary will be transferred to the franking account of the NZ parent.
This only applies when all NZ companies in the wholly-owned group have made a NZ franking choice.
Joint and several liability
All members of the same wholly-owned group that are Australian or NZ residents may be held jointly and severally liable for any outstanding franking related liabilities of the NZ franking company, unless they are prevented by an Australian or NZ law from entering into an arrangement to make them jointly or severally liable.
Penalties
A general interest charge applies to outstanding tax liabilities not paid by the due and payable date.
Penalties may also apply for failure to meet certain tax obligations (including lodging returns when required) and if there is a shortfall of tax in certain circumstances.
Revoking a NZ franking choice
A NZ franking company may revoke its franking choice by notifying us on the approved form NAT 9143-02.2004
When a NZ franking choice is revoked, a franking debit will arise to cancel any surplus in the franking account or a franking deficit tax liability will arise if there is a deficit in the franking account.
Cancelling a NZ franking choice
We may cancel a company's NZ franking choice if it does not pay its franking deficit tax or over-franking tax liability by the due date or it fails to provide a franking return to us when required.
When a NZ franking choice is cancelled, a franking debit will arise to cancel any surplus in the franking account or a franking deficit tax liability will arise if there is a deficit in the franking account.
Trans-Tasman imputation - information for New Zealand companies.