Tracing of shareholder interests

2011 amendment to Income Tax Act clarifies that the market value interest referred to in section YC 11(3) is the market value interest in the issuing company.

Section YC 11(3) of the Income Tax Act 2007 

Key features

Section 131 of the Taxation (Tax Administration and Remedial Matters) Act 2011 amends section YC 11(3) of the Income Tax Act 2007 to clarify that the market value interest referred to is the market value interest in the issuing company.

Detailed analysis

In the 2007 Act, a number of rules for two or more companies depend on whether there are the same ultimate shareholders of those companies. Examples of these rules include the loss carry-forward provisions and the loss grouping provisions, among many others.

To determine who the ultimate shareholders of a company are, the tracing rules look through a chain of companies interposed between the company of interest and the ultimate shareholders. However, in section YC 11, if the company holding the shares is a limited attribution company, that company is treated as the ultimate shareholder if:

  • the shareholder company's voting interest or market value interest (without tracing to its shareholders) in the underlying company is less than 50%; or
  • the shareholder company is not associated with the issuing company and has an interest of less than 10%.

As section YC 11(3) may refer to more than one limited attribution company, the provision is being amended to clarify that the market value interest referred to in the section are the interests of the issuing company.