Commissioner's operational position on Part 10B transfers of excess tax, effective date for ICA entries.
This operational position considers requests to transfer overpaid tax, within a taxpayer’s account or to the account of another entity or associate. It considers effects on the imputation credit account of both transferor and transferee companies of requests to transfer to a date in the past.
The purpose of an Operational Position is to outline the legal position that the Commissioner considers is correct for an issue identified and the approach the Commissioner will be taking to applying that position in practice.
Under Part 10B of the Tax Administration Act 1994 (the TAA) taxpayers can request the Commissioner to transfer overpaid tax to another period or tax type within their own tax accounts or to the accounts of other entities or associates. They can also sometimes choose a date (the date of transfer) that a transfer of overpaid tax will be effective from. A question has arisen over the effect on the imputation credit account (ICA) of both transferor and transferee companies if an earlier date is chosen (as the TAA allows). It has been identified that in practice taxpayers, and Inland Revenue, have often treated the effective date as the date the transfer is processed rather than requiring adjustments to the ICA back to whatever earlier date has been chosen.
The Commissioner considers that the correct position is that an ICA must have entries recorded as at the date of transfer ie. the effective date chosen. It is not appropriate to record the entries as at the date Inland Revenue processes the request to transfer excess tax.
This conclusion is consistent with the explanation of the transfer rules in Tax Information Bulletin Vol 14, No 11 (November 2002). It may mean, however, that adjustments need to be made to ICA balances back to the date of transfer and that imputation returns after the date of transfer are no longer correct. The consequences of that could include further income tax, imputation penalty tax and Use of Money Interest for the transferor company.
When making requests for transfers, taxpayers need to consider the possible effects on ICA balances and imputation returns and take them into account to ensure the ICA is correct after the transfer.
The Commissioner will be applying this interpretation to requests for transfers made on or after 5 February 2020.
The Commissioner will adjust, and apply the correct view of the law, when an audit or investigation uncovers incorrect ICA entries or where incorrect entries are identified when processing a transfer request to an earlier period. However, the Commissioner will not devote resources to identifying adjustments to ICA accounts and assessments affected by an incorrect transfer date being used for a transfer of excess tax under Part 10B of the TAA where transfers have been requested prior to 5 February 2020.
National Advisor, Escalations
Technical Standards, Legal Services
Date of issue: 5 February 2020