About the 2009 reduction of company tax rate (CTR)
Who is affected and when
Everyone whose income is taxed at the company rate is affected by the change. See Taxing companies for a list of who this applies to. Generally, the change takes effect from the start of your business's 2009 income year. For most, this is from 1 April 2008. However, the change applies specifically from 1 April 2008 for some types of portfolio investment entities (PIEs). (See the details of the remedial legislation for more information.)
What aspects of my tax are affected
The change of CTR affects:
- calculation of income tax (including provisional tax)
- allocation and use of imputation and FDP (foreign dividend payment) credits
- the rate of other tax types that are based on or linked to the CTR.
Keep reading to find out more.
Calculation of income tax
If you pay tax at the company rate, all income you receive from the start of your 2009 income year is taxed at 30%. Instructions for the following annual income tax returns will be updated at the relevant times, for you to use the correct rate:
- Companies (IR4)
- Clubs and societies (IR9)
- Registered superannuation funds (IR44).
You need to start using this reduced rate from when you calculate your first 2009 provisional tax payment onward. (The specific dates for these depend on your business?s balance date.) The CTR change affects provisional tax calculations differently depending on whether you are using:
- the standard option (see Provisional tax basics), or
- the new ratio option (see Changes to provisional tax).
(The Estimation option operates in a way that means the new rate is automatically taken into account.) Also read our updated Provisional tax guide (IR289) and Tax Information Bulletin Volume 19 No 6 (July 2007) for more detailed information.
Imputation (and FDP) credits
The CTR change affects imputation in a range of ways. Even if the tax payments that generate imputation credits are made at the previous rate of 33%, those credits might not be distributed until after the new rate has started to apply. This means a set of transitional rules are needed, to cover the changeover to the new rate.
The area of imputation affected most is the maximum imputation ratio, which the new rate sets at 30:70. We have allowed a rate changeover window, during which you can allocate credits that relate to tax paid at 33% at the previous maximum ratio, to prevent any potential disadvantage to your shareholders. Most of the same rules for imputation also apply to FDPs.
Find out more here about how the CTR change affects imputation Imputation and the CTR change, both for:
- companies distributing imputation/FDP credits attached to dividends, and
- shareholders receiving and claiming those credits.
Also read our new Imputation and the company tax rate change (IR237) and the Tax Information Bulletin Vol.20 No.3 (April 2008) for more detailed information.
Related rates
A range of other tax rates are based on or linked to the CTR. The following tax activities are affected:
- 2007/08 closing balances for BETA (branch equivalent tax accounts) (IR408) and Conduit tax relief (IR406) will be multiplied by 30/33 to adjust them for the new rate.
- Calculations of FITC (foreign investor tax credits) are affected by the transition to the new maximum imputation ratio.
- The following rates also change to 30%, parallel with the new CTR:
- QCET (qualifying companies election tax) (IR4P) for elections for 2009 and onward
- income tax rate for widely held savings vehicles (an existing category of businesses redefined in the new legislation)
- the maximum PIR (prescribed investor rate) for investors in a PIE (portfolio investment entity).
The affected returns and forms will be updated at the relevant time, for you to submit the correct information. Read the Tax Information Bulletin Vol.20 No.3 (April 2008) to get the full details.
Business structure changes
The CTR change may prompt you to consider changing your business structure. Seek advice from your professional adviser or tax agent if you are considering:
- incorporation
- changing your balance date.
In either case, you will need to comply with a range of rules and accounting adjustments.
Find out more
Find out more here about the legislation that covers the consequential effects of the CTR change.
Date published: 16 Mar 2008
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