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Excess imputation credits are created when shareholders receive dividends that give them New Zealand imputation credits that are greater than their total tax payable for the year. Unlike other credits, such as resident withholding tax, unused imputation credits cannot be refunded. For companies, estates, trusts, Maori authorities and incorporated clubs and societies any excess imputation credits are converted to a deemed loss and carried forward and offset against net income in a later year.
From the 2005/06 income year, any excess imputation credits received by individuals and unincorporated clubs and societies are required to be carried forward. These can then be offset against their tax liability in a later year.
Any deemed loss from the 2005 or earlier income years can be carried forward as a loss until it is fully offset against net income.
Taxpayers will be informed of their excess imputation credits balance carried forward in their personal tax summary or by letter for those who file an Individual tax return (IR3) or Income tax return - clubs or societies (IR9).
Individuals and unincorporated clubs and societies with excess imputation credits carried forward are required to file an income tax return. For individuals, this means filing an IR3 form.
If a taxpayer with excess imputation credits carried forward is granted relief from paying outstanding tax, these credits will be reduced in part or in full on a dollar-for-dollar basis for the amount written-off. If they have both a loss and excess imputation credits carried forward, the loss will be reduced first.