PDP Taxation to be Clarified

April 17, 2009 New Zealand FinanceNew Zealand Taxation  No comments

The Government has released statements saying that they are seeking to clarify matters around taxation of certain profit distribution plans.

According to a media release made by Finance Minister Bill English and Revenue Minister Peter Dunne, the Government is concerned about the taxation consistency found between standard dividend reinvestment plans and bonus issues of shares distributed under profit distribution plans (PDPs).

Regular dividend reinvestment allows receivers to choose between receiving cash dividends or shares. Both options are subjected to the imputation and taxation system. Under certain PDP setups dividends come in the form of share issues, which are immediately sold for cash back to the company. This is not specifically addressed in any sets of tax regulations and therefore escapes taxation.

The Government is concerned about this advantage and claims that it intends to address this problem via further legislation further in the year.