Extending the amalgamation tax rules to building societies

2011 amendment ensures building societies that transfer all of their engagements under the Building Societies Act 1965 are subject to the tax amalgamation rules.

Sections FO 4 and YA 1 (definitions of "amalgamated company", "amalgamating company" and "amalgamation") of the Income Tax Act 2007; and section 75 of the Tax Administration Act 1994

Amendments have been made to the Income Tax Act 2007 and the Tax Administration Act 1994 to ensure that building societies that transfer all of their engagements under the Building Societies Act 1965 are subject to the tax amalgamation rules, like ordinary companies.

Background

Ordinarily, for the purposes of the Income Tax Act 2007, the definition of a "company" includes a building society. Previously, the tax rules for amalgamations only applied if companies amalgamated under the Companies Act 1993. Building societies are unable to amalgamate under the Companies Act 1993 because that Act does not recognise a building society to be a company. As a result, the income tax treatment for amalgamations previously did not apply to building societies.

For tax purposes, the end result of building societies that transfer all of their engagements to another building society under the Building Societies Act 1965 is sufficiently similar to companies that amalgamate. Therefore, legislative amendments have been made to extend the amalgamation tax treatment to building societies that transfer all of their engagements under the Building Societies Act 1965. This is supported by the fact that generally, for income tax purposes, building societies are treated as companies.

Key features

  • Amendment to the "amalgamation", "amalgamating company" and "amalgamated company" definitions.
  • Requirement for the amalgamating building society to notify the Commissioner of the amalgamation.

Application date

The amendments apply from 30 September 2010.

Detailed analysis

Amendment to the "amalgamation", "amalgamating company" and "amalgamated company" definitions

Amendments have been made to the definitions of "amalgamation", "amalgamating company" and "amalgamated company" to extend the amalgamation tax rules to building societies. Only building societies that transfer all of their engagements under the Building Societies Act 1965, and that meet other certain criteria, will be able to use the amalgamation tax rules.

As part of the new definitions, the building society that is transferring all of its engagements is required to transfer or assign all funds, property or assets before being removed from the register of building societies. However, the transferring building society is allowed to retain funds, property or assets to the extent required to "settle its affairs" before being removed from the register. This term is intended to cover a range of events necessary to wind up a building society. For the avoidance of doubt, the term "settling its affairs" is intended to include disposal of cross shareholdings.

Requirement for the amalgamating building society to notify the Commissioner of the amalgamation

This amendment to the Tax Administration Act 1994 is an extension of the current requirement for amalgamated companies to notify the Commissioner of Inland Revenue of the amalgamation.