Income Tax Amendment Act (No 3) 1985

This commentary item was published in Public Information Bulletin Volume 141, November 1953

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Taxation of Capital Distributions

Following the Minister of Finance's delivery of the Statement of Taxation and Benefit Reform, the Income Tax Amendment Bill (No. 4) 1985 was introduced to Parliament and passed through all stages on 21 August 1985. It became the Income Tax Amendment Act (No. 3) 1985.

The Amendment Act has effect from and including 21 August 1985.

Capital Dividends now Liable to Tax

Except for certain distributions on winding-up, all distributions made by companies on or after 21 August 1985 will be taxable in the hands of shareholders, including distributions from realised capital profits and share premium reserves. Distributions after this date will be taxable irrespective of when the capital reserve or share premium reserve account was created.

Exemption Upon Winding-Up

Capital distributions made upon the winding-up of a company will, however, continue to be exempt from tax in the shareholders' hands, except where the distribution is made to a shareholder which is a related company.

Non-Resident Withholding Tax

One effect of the amendment is that all distributions to a non-resident shareholder after 21 August 1985, other than distributions made upon the winding up of a company, (not being distributions to a related company) will be liable for non-resident withholding tax.

Related Company

A related company for the purpose of this amendment is the same as that defined in section 4(5B) of the Income Tax Act 1976.