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It’s not too late to pay out those old imputation credits, but it soon will be

31 March 2013 is an important date in the world of tax and not just because it’s the tax year end for most taxpayers.  It also marks the end of the ability for companies to pay dividends attaching imputation credits using the old 30/70 ratio. After this date, companies will pay all imputed dividends using the 28/72 imputation credit ratio. 

When the company tax rate dropped from 30% to 28% for the 2012 income year, the default imputation ratio also changed from 30/70 to 28/72.  However a transitional rule has operated since the beginning of the 2012 income year to permit companies to pay dividends to shareholders attaching imputation credits arising from tax paid at the 30% rate using the old 30/70 ratio. This rule ends on 31 March. 

Therefore if companies still have imputation credits that arose from tax paid at the old 30% rate, urgent consideration should be given to paying a dividend to pass out these imputation credits to shareholders prior to 31 March 2013 if it makes sense to do so.

There is a potential trap with this rule in that Companies that have paid out dividends using the old ratio during the transitional period need to make sure that such 30% rate imputation credits are in fact available to be attached to dividends and that the balance of these credits will not be in debit at 31 March 2013.  It is therefore necessary to track those credits and debits to the ICA which relate to tax paid at the 28% rate and those credits and debits to the ICA which relate to tax paid at the 30% rate.   Refunds of tax which relate to the 2011 and earlier years will reduce the balance of 30% credits and if these refunds have not been taken into account when working out what credits are available, then companies may find that the balance of 30% credits is in a debit position at 31 March 2013. If a debit balance results from the balance of credits arising from 30% tax paid, a one off transitional penalty will arise.  In this case it does not matter that the overall ICA may be in credit.

Therefore the key message is, it’s not too late to pay a dividend and pass out those old 30% imputation credits to shareholders, but care needs to be taken in doing so.  Please contact your Deloitte tax advisor for more information. 

Tax Alert March 2013 contents


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