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Qualifying company election tax

From May 2007 payments of qualifying company election tax are credited to the imputation credit account so they become a withholding tax rather than a final tax.

Section ME 4 of the Income Tax Act 2004 and section OB 7B and Table O1 of the Income Tax Act 2007

Qualifying company election tax (QCET) has, up to now, where a company has elected to become a qualifying company, been a final tax on that part of a company's shareholder's funds that are not sheltered by imputation credits. From 17 May 2007, payments of QCET are credited to the imputation credit account (ICA) and so they become more of a withholding tax.


When the qualifying company rules were introduced in the early 1990s it made little difference whether QCET was a final tax or a withholding tax. However, given that QCET is payable at the company rate of tax, the new 30% tax rate for companies exacerbated the issue of whether QCET should be a final tax or a withholding tax.

Key features

The sections that govern imputation credit handling have been amended to provide that payments of QCET are creditable against the company's ICA, so that when the associated income is distributed, it retains its taxable nature in the shareholders' hands, but the credits for the QCET are attached as imputation credits. This is because of the core qualifying company rules that provide that dividends are imputed to the extent of imputation credits available.

Application date

The amendments apply from the date of their announcement, 17 May 2007.