Brief description of issue:
Section OB 32(2)(b) of the Income Tax Act 2007 (the 2007 Act)
states:"OB 32(2) NO DEBIT A debit under subsection (1) does
not include -
(b) a refund of income tax paid before a debit arises under
section OB 41, but only to the extent to which the amount of the
refund is less than the amount of the debit;"
emphasis added
The equivalent section in the Income Tax Act 2004 (the 2004
Act) is section ME 5(1)(e)(iii) which states:
"ME 5(1) [Recording debits] There arise as debits to be
recorded in a company's imputation credit account for any
imputation year the following amounts:
(e) the amount of any refund of income tax paid to the
company during the imputation year except to the extent that -
(iii) the amount of the refund does not exceed the amount of
a debit arising under paragraph (i) if -
(A) the refund is in respect of income tax paid prior to the
date that the debit arose; and
(B) in the case of a refund arising by virtue of subpart LE,
the supplementary dividend paid by the company giving rise to
the refund was paid before the date that the debit arose under
paragraph (i);"
emphasis added
The general rule is that an imputation credit account company
has an imputation debit for the amount of a refund of income tax
paid to the company. No debits arise in certain circumstances
listed in section OB 32(2).
Under section OB 32(2)(b) of the 2007 Act, there is no debit
to an imputation credit account for a refund of income tax paid
before a debit which arises from a shareholder continuity
breach. The exception is limited to the amount of refund that is
less than the amount of the debit.
However, under section ME 5(1)(e)(iii) of the 2004 Act, the
same exception is limited to the amount of refund that does not
exceed the amount of the debit.
The change in the wording of the sections means that the
exception from a debit in the ICA under section OB 32(2)(b) is
restricted to the amount of the refund that is less than (and
not equal to) the amount of the debit, whereas previously, the
amount of refund can be equal to the amount of the debit. We
understand that this is not an intended change.
We recommend that the wording in section OB 32 (2)(b) of the
2007 Act should be amended to reflect the wording in the 2004
Act.
