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If you have a company, we'll let you into a secret.
We know, each year when we speak with you about what you want to do about dividends, that the minute we start to talk about imputation credits and the imputation credit account, we watch your eyes glaze over and we know the 'la la la la la la' soundtrack is playing in your head.
It's okay. Almost everyone finds them hard to understand. And really, that's okay with us because… that's what we're here for, right?
So, we know it might not occur to you, when you log on to the Companies Office website to update your shareholder details, that you could have made your tax position more complicated by doing yourself out of tax credits.
Because the Companies Office has made it really easy to update details on their website and that's great. Particularly for small companies, it makes it quick, easy and convenient.
However, it's not the Companies Office's job to look out for your tax position. It's ours.
So when you go to update shareholder details for prior shareholding changes, there's nothing to remind you that if your company's shareholding has changed by more than 33% each year, you lose what they call 'continuity of shareholding'.
Put another way, if your company doesn't have 66% commonality of shares in any given year, it loses its imputation credits.
You may end up paying more in tax, and you'll lose the credits you built up in previous years and there's nothing you can do about it.
The rules around shareholder continuity are about making sure that this year's shareholders who enjoy the benefits today of the tax losses that were carried forward and the imputation credits that accrued last year are largely the same people who were shareholders when those benefits were building up.
To calculate a company's shareholder continuity you generally have to track the voting interests of the individuals who ultimately own the company. This is not always straightforward.
Size and timing of the proposed change?
If you want to make more than a 50% change to shareholding, can we talk about it to make sure you understand all the implications?
Should the company pay a dividend now to utilise available imputation credits, before you make that change in shareholding?
Did the company have tax losses last year which were carried forward?
If the proposed change in shareholding affects more than 49% of the shares, then the company won't be able to carry the tax losses forward.
Look Through Company?
If the company is a Look Through Company, a transfer in shareholding may cause the company to fall out of the Look Through Company regime.
Will you be happy with that? Do you want us to advise Inland Revenue?
Do you want us to arrange for the company to re-elect to be in the Look Through Company regime for the next tax year?
Does the proposed change affect directors' interests in any way?
We should make sure the register of directors' interests is updated, in that case.
So, next time you want to just make a quick update to your company details on the Companies Office site, put down that mouse and pick up the phone. Talk to us.
We can look at your situation and what options are available. And we can also put together the documentation you need to record the transactions so everything is squared away.
If you have any questions or would like further information, please feel free to contact us.