DOUBLE TAXATION OF SOME INVESTMENTS IN AUSTRALIAN AND NEW ZEALAND COMPANIES- CHANGES FROM MAY 2003

Changes to the trans-Tasman triangular tax agreement were announced in February 2003 to remove the double taxation of some investments in Australian and New zealand companies.

The issue dates back to the late 1980s, when both countries adopted the approach that income derived through a company is effectively the income of the shareholders, and therefore should be taxed at the marginal tax rate

Any tax paid by the company was treated as a withholding tax and when the company's income was distributed through dividends or other methods, additional tax is payable if the shareholder's marginal tax rate is higher, or a credit is given against other tax if it is lower.  However, under the present law, these franking credits, as they are known in Australia (imputation credits in New Zealand) cannot be used if the company is not a domestic resident.

The changes announced by Finance Minister Michael Cullen and Australian Treasurer Peter Costello mean the imputation credits will be extended to New Zealand shareholders in Australian companies and Australian shareholders in New Zealand firms.

The changes are due to take effect in May 2003.