Keen for a refresher on the imputation credit timing of tax pooling transactions?

Watch our ICA webinar recording on demand, hosted by Jeromy Meerman CA & Erik Chamonte CA. You will find the slide deck here.

Shareholder Continuity Breach: Example 2

Since the presentation/webinar, we have revised our view on how section OB 26(2) (of the Income Tax Act 2007) applies to Example 2. In Example 2 (in the 'Shareholder continuity breach' section), Initech’s new shareholder (Naomi) requests a refund of a deposit that was made into the tax pool prior to a breach in shareholder continuity (“pre-breach deposit”). On the date of breach in shareholder continuity, $2k of imputation credits were forfeited (which related to the pre-breach deposit). We considered the refund would have given rise to a ‘double’ (or second) debit, meaning that Naomi would receive a $2k credit in the ICA at the date of the refund. This however would result in a more favourable position to the taxpayer, compared with having paid Inland Revenue directly (assuming the same facts).

Our revised position is that when applying section OB 34 (of the Income Tax Act 2007), the step one debit effectively eliminates the debit that would otherwise occur on a breach of shareholder continuity (and there will therefore be no imputation credits forfeited on a breach of shareholder continuity). As such, there is no ‘double’ (or second) debit, and therefore no imputation credit will arise for Naomi under section OB 26. This results in the same position as if Naomi had paid Inland Revenue directly.