Section CD 34B — Income Tax Act 2007: Distributions to members of co-operative companies

CD 34B Distributions to members of co-operative companies What this section applies to (1) This section applies to a distribution by a co-operative company, or by a company (a subsidiary ) in which the co-operative company has a voting interest of 100%, if— (a) the distribution is made after the Commissioner has received, from the co-operative company, an election in writing to apply this section; and (b) the election has not been revoked. General rule: co-operative company distributions not dividends (2) If the requirements in subsection (4) are met, a distribution by a co-operative company, or by a subsidiary, to a member of the co-operative company is not a dividend, to the extent to which the distribution is for their–– (a) transaction shares: (b) projected transactions shareholding: (c) limited non-transaction shares. Exception: distributions for excess shareholdings (3) Subsection (2)(c) is ignored,–– (a) for a distribution to a member, if the member holds shares in the co-operative company that— (i) are not transaction shares, are not their projected transactions shareholding, and are not limited non-transaction shares; and (ii) may entitle members to enter trading transactions: (b) for all distributions to all members, if the constitution of the co-operative company permits any member to hold shares that–– (i) are not transaction shares, are not their projected transaction shareholding, and are not limited non-transaction shares; and (ii) may entitle members to enter trading transactions. Requirements (4) For the purposes of subsection (2), the requirements are–– (a) the co-operative company is resident in New Zealand for the period to which the distribution relates; and (b) the company making the distribution is resident in New Zealand for the period to which the distribution relates; and (c) the co-operative company believes on reasonable grounds that the member at the time of the distribution–– (i) is resident in New Zealand: (ii) has a fixed establishment in New Zealand. Meaning of transaction shares (5) In this section, transaction shares means the number of shares in the co-operative company that the member holds for trading transactions that occurred in the period to which the distribution relates. The number of shares must determine the value of the trading transactions. Meaning of limited non-transaction shares (6) In this section, limited non-transaction shares means the member's shares that are not the member's transaction shares or their projected transactions shareholding, and that may entitle the member to enter trading transactions, if the number of those shares is less than or equal to the greater of the following: (a) 20% of the member's transaction shares on the date of entitlement for the distribution under section 125 of the Companies Act 1993: (b) 20% of the member's projected transactions shareholding on the date of entitlement for the distribution under section 125 of that Act. Meaning of projected transactions shareholding (7) In this section, projected transactions shareholding means the number of shares in the co-operative company that the member would have had to hold if the trading transactions actually had occurred that the member had projected, using reasonable assumptions, would occur in the period to which the distribution relates. The number of shares must determine the value of the trading transactions. Meaning of trading transactions (8) In this section, trading transactions means transactions between the member and the co-operative company or subsidiary that are–– (a) the sale and purchase of trading stock of the vendor that is not intangible property; and (b) not subject to section CB 2 (Amounts received on disposal of business assets that include trading stock). Companies Act 1993 (9) The 20 working day rule for fixing a date in section 125(2) of the Companies Act 1993 does not apply to members' entitlements to receive distributions that are for transaction shares, projected transaction shareholdings, limited non-transaction shares, or shares described in subsection (3), if–– (a) the co-operative company or the subsidiary, as the case may be, has given a copy of the election described in subsection (1) to the Registrar of Companies before the relevant distributions are paid; and (b) for the purposes of section 125(1) of the Companies Act 1993, the co-operative company or the subsidiary, as the case may be, fixes a date in relation to members' entitlements to receive distributions before the entitlements arise, and that date is within the year or period to which the distributions relate. Defined in this Act: Commissioner , company , co-operative company , dividend , limited non-transaction shares , projected transaction shareholding , resident in New Zealand , share , trading stock , trading transactions , transaction shares Section CD 34B: inserted (with effect on 1 April 2010), on 7 September 2010, by section 9 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).