Peter Costello

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Trans-Tasman Tax Break-Through



The Australian and New Zealand governments announced today that a new tax arrangement which could boost trans-Tasman investment will come into force soon.

"Both countries expect to introduce legislation in May to relieve the double taxation of certain investments in Australian and New Zealand companies that operate in both countries," said Australian Treasurer Peter Costello and New Zealand Finance and Revenue Minister Michael Cullen.

"These long awaited reforms reflect the commitment of both governments to the continued strengthening of the Closer Economic Relations agreement between Australia and New Zealand and to promoting trans-Tasman business," Mr Costello and Dr Cullen said.

"The reforms are aimed at what is known as the `triangular tax' problem, where Australian and New Zealand shareholders investing through a company resident in the other country that earns income and pays taxes in their own jurisdiction are unable to get imputation credits arising from the payment of such taxes."

"To resolve this problem, Australia and New Zealand will extend their imputation systems to include companies resident in the other country."

"Under this reform, Australian and New Zealand shareholders of trans-Tasman companies that choose to take up these reforms will be allocated imputation credits, representing New Zealand tax paid, and franking credits, representing Australian tax paid, in proportion to their ownership of the company. However, each country's credits will be able to be claimed only by its residents."

"These changes will remove an impediment to trans-Tasman business. Therefore we are especially pleased to be able to announce them in this year of the twentieth anniversary of the signing of CER," Mr Costello and Dr Cullen said.

The expected date of effect of the new legislation is 1 April 2003 for New Zealand companies maintaining a franking account and Australian companies maintaining an imputation credit account, although franked or imputed dividends cannot be paid out until 1 October 2003.

For more information see Technical Appendix.

19 February 2003

Contact: Niki Savva
(02) 6277 7340

Technical Appendix

Details of trans-Tasman imputation (triangular) reform as proposed by the Australian and New Zealand governments


New Zealand companies will be able to elect to maintain an Australian franking account, subject to full compliance with the Australian provisions relating to franking accounts.

Australian companies will be able to elect to maintain a New Zealand imputation credit account, subject to full compliance with the New Zealand provisions relating to imputation credit accounts.

Australian shareholders of New Zealand companies that have elected to maintain a franking account and earn Australian income will be able to access franking benefits on a pro rata basis (in proportion to their shareholding in the New Zealand company) arising from the payment of Australian tax on that income.

New Zealand shareholders of Australian companies that have elected to maintain an imputation credit account and earn New Zealand income will be able to access imputation benefits on a pro rata basis (in proportion to their shareholding in the Australian company) arising from the payment of New Zealand tax on that income.

Franking credits will arise in New Zealand companies' franking accounts for dividend, interest and royalty withholding taxes deducted in Australia. They will arise in addition to credits for Australian income tax and franking credits attached to dividends received.

Imputation credits will arise in Australian companies' imputation credit accounts for New Zealand taxes deducted from or paid by the Australian company. Such taxes include non-resident withholding taxes on interest, royalties and dividends and
non-resident contractors' withholding tax.


The application date is 1 April 2003 for New Zealand companies maintaining Australian franking accounts and Australian companies maintaining New Zealand imputation credit accounts. Companies will not be able to distribute the credits until 1 October 2003.

The Australian exempting company rules

The `look-through' approach that currently applies in relation to Australian companies under the Australian exempting company rules will be extended to include New Zealand companies so that they are `looked through' to find the ultimate effective owners. Companies that satisfy the extended rules will be able to pass on the benefits of the reform to their Australian shareholders.

The exempting company rules will also be amended to:

  • give Australian resident shareholders in a New Zealand listed company that is an exempting company franking benefits for franking credits attached to dividends paid by the entity; and
  • allow the 100 per cent owned Australian subsidiary of a New Zealand listed company that fails the amended exempting company rules to nevertheless pass franking credits to its parent.

Existing credits

Franking credits accumulated by an Australian subsidiary of a New Zealand company before 1 April 2003 will be available to frank distributions if the subsidiary would not have been treated as an exempting company under the proposed changes, had they applied before that date.

A company that is an exempting company immediately before 1 April 2003 will have access to franking credits accumulated before that date, provided that, during the period 13 May 1997 (when the exempting company rules came into effect) to 1 April 2003, either:

  • effective Australian ownership of the company, determined using the look-through approach, was always greater than 5 per cent; or
  • the company was a 100 per cent owned subsidiary of a New Zealand listed company.

Imputation credits accumulated by a New Zealand subsidiary of an Australian company before 1 April 2003 will be available to impute distributions made by Australian companies after 1 October 2003.


In Australia, all companies in a wholly owned trans-Tasman group will be jointly and severally liable for the payment of additional tax and penalties when a New Zealand company runs its Australian franking account into deficit and defaults on the franking deficit tax payable.

In New Zealand, all companies in a wholly owned trans-Tasman group will be jointly and severally liable for the payment of further income tax, penalties, and interest when an Australian company has a debit balance in its New Zealand imputation credit account at the end of the imputation year and defaults on these liabilities.

In both countries, sectors such as banking, funds management and insurance, where regulations prohibit such entities from assuming the liabilities of others in the group, will be excluded from the joint and several liability.

Reducing the franking rebate for Australian shareholders

The franking rebate received by an Australian shareholder of a New Zealand company who is eligible to receive credits for foreign tax (for example, an investor with less than a 10 per cent shareholding) will be reduced to the extent of the supplementary dividend paid by the New Zealand company.

Trans-Tasman group structures

Both countries will generally allow Australian and New Zealand group structures, regardless of the percentage of ownership, to pass credits through to their underlying shareholders.

Trans-Tasman group structures involving a third country/Consolidation for imputation purposes only

In Australia, wholly owned trans-Tasman groups involving an entity not resident in Australia or New Zealand will be able to pass through franking credits to the Australian shareholders of a New Zealand company.

New Zealand will allow a consolidation election for imputation purposes, based on the existing consolidation provisions. Such an election will also be available to Australian companies within wholly owned trans-Tasman groups.

Commissioner's discretion

The Commissioner of Taxation in Australia will be given discretion to revoke an election to maintain an Australian franking account in certain circumstances where a New Zealand company does not comply with Australia's imputation rules. The Commissioner of Inland Revenue in New Zealand will be given a similar discretion.

Further details

Further issues may arise in the development of the legislation and will be dealt with at that time.


19 Feb 2003

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