Chapter 1 - Introduction

1.1 The Government announced in April that it intends to clarify the law to ensure that bonus issues of shares distributed under profit distribution plans (PDPs) are taxed in the same way as shares issued under other dividend reinvestment plans (DRPs). Because PDPs make use of a different form of transaction that is not explicitly covered by the tax rules, shareholders investing under PDPs may, in certain cases, have a tax advantage over those investing under DRPs.

1.2 As pointed out in the Government’s announcement, there is no clear reason why one form of dividend reinvestment plan should be tax-advantaged over the other.

1.3 The intention is to confirm that distributions of bonus shares to shareholders under both plans would be taxable as dividends.

1.4 This issues paper has been prepared by officials from the Policy Advice Division of Inland Revenue and from the Treasury, as part of the consultation process. We want to ensure that the proposed law changes work effectively and fairly from a compliance and company law perspective and that the principles of the imputation system are adhered to. We are particularly interested in hearing of any practical difficulties that the proposed change might create for affected companies or their shareholders. Submissions will be taken into account when we make formal recommendations to the Government on the final form of the change.

How to make a submission

1.5 Submissions should include a brief summary of major points and recommendations. They should also indicate whether it would be acceptable for officials from Inland Revenue and the Treasury to contact you about your submission to discuss the points it raises. Submissions should be made by 7 August 2009 and be addressed to:

The Taxation of Profit Distribution Plans
C/- Deputy Commissioner, Policy
Policy Advice Division
Inland Revenue Department
PO Box 2198
Wellington 6140

Or e-mail [email protected] with “PDPs” in the subject line.

1.6 Submissions may be the source of a request under the Official Information Act 1982, which may result in their publication. The withholding of particular submissions on the grounds of privacy, or for any other reason, will be determined in accordance with that Act. If you think any part of your submission should properly be withheld under the Act, you should indicate this clearly.