Assessments and disputes, penalties and interest, and the ICA

• Penalties and interest
  • Imputation penalty tax
  • Late payment penalty
  • Shortfall penalties
  • Late filing penalty
• Transactions recorded in the ICA
  • Opening Balance
  • Credits
  • Debit entries
  • Closing balance
• Significance of ICA closing balance

Assessments and disputes

If you disagree with an imputation assessment you can follow our formal disputes process. To find out if you would like to follow this process, read our leaflet, If you disagree with an assessment (IR778).

Penalties and interest

There are four types of penalties that can apply to imputation:

Imputation penalty tax

If a company has a debit balance in its ICA at 31 March it will automatically incur a 10% penalty on the further income tax due.

Late payment penalty and interest

If tax is not paid by the due date, late payment penalties will apply. For every month the amount remains unpaid, a further incremental penalty will also apply. We will also charge interest on any outstanding amounts.

Shortfall penalties

A shortfall penalty is a percentage of a tax shortfall (or deficit of tax) that results from certain actions by the taxpayer. The law divides these actions into five categories of fault, and the penalty increases according to the seriousness of the fault.

Late filing penalty

A late filing penalty of $250 may be imposed on Australian companies which do not file their annual imputation credit account returns on time.

Transactions recorded in the ICA

The ICA is a memorandum (record-keeping) account, which records the balance of imputation credits available for allocation with dividends. It has an opening balance, credit and debit entries, and a closing balance.

Opening Balance

The opening balance of the ICA (which may be either a debit or credit) is exactly the same as the closing balance of the preceding imputation year. For a new ICA company, the opening balance will be nil.

Credits

Credits to an ICA increase the amount available for allocation to dividends paid to shareholders. Following are the main credit entries:

• New Zealand income tax paid by the company for 1989 and subsequent income years (does not include additional tax or interest).
• Imputation credits attached to dividends the company receives from other companies.

For Australian companies

• Non-resident withholding tax on interest, dividends or royalties;
  
  
• Non-resident contractors' withholding tax;
  
  
• Non-resident shippers tax
  
  
• Non-resident film renters tax; and
  
  
• Non-resident insurers' tax.
  
  

Debit entries

Debits to an ICA reduce the amount available for allocation to dividends paid to shareholders. Following are the main debit entries.

• Any refunds of the credits listed above
  
  
• Imputation credits attached to dividends that a company pays to its shareholders
  
  
• An adjustment when a change of shareholding of more than 34% has occurred
  
  
• Most New Zealand income tax refunds received during the income year (there are some exceptions)
  
  
• Tax allocated by a company to another wholly-owned company that has underpaid its provisional tax
  
  
• An adjustment when a company ceases to be an ICA company
  
  
• The amount of a credit in the company's ICA (equal to 33% of an amount attributed under the personal attribution rules) if the company's financial statements are adjusted to reflect an amount attributed under the personal attribution rules.
  
  

Closing balance

At 31 March each year a company must balance its ICA. It does this by adding all the credit entries (including the opening balance if it is a credit) and deducting all the debit entries (including the opening balance if it is a debit). The final answer is the closing balance.

Significance of ICA closing balance

If a company's income tax return works out to a refund, the amount that can be refunded will generally be limited to the amount of the credit closing balance in the company's ICA at the end of the most recently ended imputation year. Generally Australian companies are not required to file income tax returns.

The ICA can have a debit balance at any time during the imputation year, but if the balance is a debit at the end of the imputation year the company must make a payment to clear the account. The payment the company must make is called "further income tax" and is due by the 20 June after year end. It will also mean that the company won't be entitled to receive any income tax refund until such time as the ICA balance is in sufficient credit to enable the refund to be made.

Date published: 01 Jan 2005

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