Companies use an imputation credit account (ICA) to keep track of:
- how much tax they've paid
- how much tax they’ve passed on to shareholders or had refunded to them.
The balance of the imputation credit account records how much credit for that tax the company can pass on to shareholders.
An imputation credit account is a memorandum or record keeping account. It's used to complete the company’s imputation returns for each tax year.
Most New Zealand resident companies need to keep an imputation credit account. Any organisation that's treated as a company for income tax purposes also needs to keep one. This includes:
- unit trusts
- cooperative companies
- life insurance companies
- statutory producer boards
- group investment funds (except for certain income).
You do not need to keep an imputation credit account if you're a:
- company that is not resident in New Zealand
- company that is resident in New Zealand, but treated as non-resident because of a double tax agreement (with the exception of the Australian double tax agreement from 15 March 2017)
- trustee company (except any group investment funds deriving category A income)
- company whose constitution prevents their income or property being distributed to any proprietor, member or shareholder
- local authority
- subsidiary company of the Accident Compensation Corporation to which section 266 of the Accident Compensation Act 2001 applies
- Māori authority
- look-through company (LTC).
If you do not have to pay tax on any of your company's income - you're exempt - you generally will not need to keep an imputation credit account. The exception to this is if the income is exempt because it's one of the following:
- foreign dividends derived by a New Zealand resident-company or trustee of a group investment fund
- dividends paid before 1 April 1996 to a unit trust manager or a trustee or manager of a group investment fund
- inter-company dividends between companies in a 100% commonly owned group.
You can read more about imputation credit accounts in our Imputation guide for New Zealand companies - IR274.
Refunds and ICA returns
We have been asked if companies affected by COVID-19 can have refunds released before the relevant ICA return is filed. We cannot release refunds from income tax where a required ICA return (or the relevant year’s income tax return) has not been filed.
The requirement to file an ICA return is a legislative one. Companies need to file ICA returns because their income tax refunds are limited under section RM 13 of the Income Tax Act 2007 to the balance of its ICA account. If the return has not been filed, we do not know if the company is entitled to a refund. We do not have discretion to choose to issue a refund if the return has not been filed.