Far North Tax Professionals

Shareholding changes in small companies

The Companies Office website is great for filing Annual Returns.  Things which haven’t changed simply get ticked.  And shareholders and directors can make shareholding changes easily too.

Bur care is needed before noting shareholding changes.  It’s easy to overlook some important things.

If shareholding changes are not made correctly, there can be unfortunate consequences.

Here are three things which ought to be considered.

  1. Documentation.  It’s easy to record a change of shareholding when filing your Annual Return.  But that is not the way to make a shareholding change.  The Annual Return is simply a statement of facts which exist on a particular date, which the person filing the return states to be correct.  The way to effect a change is to use the prescribed Share Transfer form and for both parties to sign.  If this doesn’t happen, a transfer may be declared invalid.
  2. Imputation credits.  Many shareholders will cringe when an accountant mentions imputation credits.  These are credits which build up over a period when a company pays income tax.  Even if you don’t completely understand them, remember they are things of value.  They are not called credits for nothing.  Their value can be transferred to shareholders who then pay less tax.  But unless you are careful, the value can be completely lost when a change of shareholding occurs.  To avoid losing imputation credits, you need to keep a certain “continuity of shareholding”.  A change in 33% or more of the shares can threaten this “continuity test”.  The company will lose the credits.  Shareholders will end up paying more in income tax if the imputation credits cannot be transferred.
  3. Company losses.  Similar “continuity” rules apply when a company makes a loss.  If all is well, a loss can be carried forward, and deducted from taxable income in the year following.  But not if the shareholder continuity rules are breached.

The continuity tests referred to above can be complicated.  They may require an exercise to track the voting interests of everyone who ultimately own the company.

If you are considering a change in the shareholding structure of your company, it’s best to check with your accountant before proceeding.


Michael Goodchild

Far North Tax Professionals



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