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Dividend integrity and personal services income attribution

A Government discussion document

Hon Grant Robertson
Minister of Finance

Hon David Parker
Minister of Revenue

March 2022

Contents

CHAPTER 1 – Introduction

• Problem
• Scope of review
• Dividend integrity
• Personal services attribution
• Proposed solutions
• Making a submission

PART I: SALE OF SHARES

CHAPTER 2 – Dividend avoidance and share sales

• Background
  • Causes
• Current provisions and relevant cases
  • Legislation and interpretations
    • Anti-avoidance provisions
    • Interpretation Statement 13/01
    • Revenue Alert 18/01
  • Case law
• New Zealand context
• International context

CHAPTER 3 – Proposal to tax a deemed dividend portion of proceeds from selling shares

• General scope of a rule
  • A. Shareholder sells shares of a controlled company but retains economic ownership of the company
  • B. Shareholder sells shares of a controlled company to an unrelated company
  • C. Shareholder sells shares of a controlled company to an unrelated individual
  • To which scenarios should a generic recharacterisation rule apply?
• Details of a rule
  • What share sales should the rule apply to?
    • Type of shareholder
    • Type of company
    • Shareholding size and control criteria
    • Look back rule
  • How much of the sale price should be taxable?
  • Consequences to seller
  • Consequences to the company
  • Consequences to the buyer
• Other issues
  • Should the amount of the deemed dividend be limited to the gain on the sale?
  • Why apply the rule to sales by companies?
  • Corporate groups
  • Sales of shares in a controlled company to another company controlled by the same shareholder
• Questions for submitters

PART II: ASC AND ACDA TRACKING ACCOUNTS

CHAPTER 4 – Current practice and issues

CHAPTER 5 – Policy options

• Record keeping
• Memorandum accounts
  • Option one: Accounts are reported to Inland Revenue annually
  • Option two: Accounts required to be kept and maintained but not required to be reported to Inland Revenue annually
• Transitional
• Questions for submitters

PART III: PERSONAL SERVICES INCOME ATTRIBUTION

CHAPTER 6 – Current law and problems

• Attribution rule for income from personal services
• Background and current law
  • Personal services attribution rule
  • Penny and Hooper v Commissioner of Inland Revenue
• Issue

CHAPTER 7 – Proposal

• “80 percent one buyer” rule
  • Suggested solution
• “80 percent one natural person supplier” rule
  • Suggested solution
• Substantial business assets test
  • Suggested solution
• Net income of working person test
• Questions for submitters