Other exemptions

Australian share exemption

When you hold shares in a company that:

• is listed on an approved index under Australian Stock Exchange (ASX) Market Rules such as the ASX All Ordinaries
• is Australian-resident (and not treated as resident in another country under an agreement between Australia and that other country)
• maintains a franking account, and
• is not stapled stock

the shares are exempt from being an attributing interest in a FIF. Where these shares are held on capital account, the only income to be returned is the dividend income.

If your dividends are franked (ie, have Australian franking credits attached) this tells you that the company is Australian resident. Your dividend advice slip should show if your dividend is a franked dividend. However, some companies may still be Australian resident, but for whatever reason, may not be able to pay out dividends with franking credits attached. If they otherwise qualify, these shares are exempt from being an attributing interest in a FIF.

List of companies that qualify for the exemption

To assist investors in determining whether or not an Australian company satisfies the exemption criteria, we will provide a list of companies from the ASX All Ordinaries index, which we consider qualify for the exemption from the FIF rules.

You can find the current Australian share exemption list (IR871) under "Work it out" on the right hand side of this page.

Investors with the standard balance date will be able to rely on the list and treat the investment as subject to tax under the general rules. Accordingly, we will treat any investor who relies on the list as having taken reasonable care in taking that tax position and will not be subject to any shortfall penalty if the shortfall arises from errors in our list.

When the list is available

The list of exempt companies will be issued annually in May for the previous income year and will apply to taxpayers who have an income year ending 31 March (ie, most individuals).

Investors will be able to rely on the list, if they:

• own shares in the company on 1 April in that income year, or
• first acquire a share during the income year while the company is still on the All Ordinaries index, or
• first acquire a share in a company that has been added to the list during the year on or after the add date, or
• do not hold a share after the date that it no longer meets the residence or no-stapling criteria. (this date will be noted on the list)

The following examples show how to apply the list.

How are shares in Australian companies taxed?

There are two different methods depending on whether the shares are covered by the Australian share exemption. Shares that:

• fall within the Australian exemption are taxed under the general income tax rules, the same as investments in New Zealand. They are not attributing interests for tax purposes and therefore fall outside the foreign investment fund rules.
• don't fall within the Australian exemption will generally be taxed under the fair dividend rate (FDR) method, comparative value (CV) method, cost method (CM), or one of the other three methods.

 

Temporary exemptions

If your investment is in ...	then an exemption applies ...
shares of Guinness Peat Group plc	for five years up to the 2011-12 income year, to give the company time to consider becoming New Zealand resident.
certain venture capital investments in New Zealand-resident companies that migrate offshore	for 10 income years from the year of migration, to encourage continued investment in this area.
shares in foreign companies where: the foreign company is resident in a grey list country and is the employer of the employee, or owns (directly or indirectly) the New Zealand resident employer of the employee the shares are acquired through employment under a share purchase agreement there are restrictions on the disposal of the shares in the share purchase agreement, for a period that satisfies the statutory requirements	during the period of restriction on disposal, and within six months from the expiry date of the restriction.

Next steps

Go to the current Australian share exemption list (IR871) under "Work it out" on the right hand side of this page.

 

Date published: 04 Nov 2011

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