Dividend Income

The term “dividend” includes:

Transfer of value by the company to the shareholder and includes any transfer which is caused due to shareholding. A transfer is deemed to be caused due to shareholding if the terms of the arrangement in the transfer are different from the terms to which the company would agree in a similar arrangement if shareholders were not involved. The transfer of value may be in cash or otherwise; and
Payment in excess of subscribed capital on liquidation or emigration.

Companies may provide other benefits to shareholders rather than paying a cash dividend, such as interest-free or low-interest loans to shareholders, sale of company property to shareholders at less than the market price or use of company property by shareholders for inadequate consideration, purchase of property from shareholders above the market price, taxable bonus issues, and payment of private expenses which are deemed as dividends.

Further, a transfer pricing arrangement where the amount paid (or received) is more than (or less than) the arm’s length amount, will give rise to a transfer of value from a company and will be deemed as dividend. However, downward transfers of value within a group of companies do not constitute deemed dividends, if certain conditions are met, including that the transferor company must have a voting interest (direct or indirect) in the receiving company, the receiving company does not have a voting interest in the transfer or company, and no person, other than the parent company has voting interest or market value interest in both the companies.

However, the term “dividend” does not include:

An investment society dividend;
A supplementary dividend;
An amount paid by a foreign portfolio investment entity (PIE) to a notified foreign investor under section HM 44B (NRWT calculation option) to the extent to which the amount represents the fully imputed portion of a dividend and the related supplementary dividend derived by the PIE;
On/ Off-market share cancellations;
Amounts paid for shares repurchased under profit distribution plans; or
Non-taxable bonus issues.

Interest Income

The term “interest” includes:

Investment society dividends;
Non-resident financial arrangement income;
Capital value increase under inflation-indexed instruments; and
The interest portion of the redemption sum in cases where the redemption payment of commercial bills and similar debt instruments exceeds the initial acquisition price, including interest.

In certain cases, the dividend is treated as interest. This includes a dividend in relation to shares issued by:

A company not resident in New Zealand;
A company whose constitution prohibits all of its income or property from being distributed to a proprietor, member, or shareholder of the company;
A company whose income is exempt income, being income other than dividend derived by the company from overseas or dividend within New Zealand wholly-owned group; or
A company that, in New Zealand, is engaged solely in the business of life insurance.

Royalty Income

The term “royalty” includes consideration paid for the following:

a) Use of or right to use a copyright, patent, plant variety rights, trademark, design or model, plan, secret formula or process, or other similar property or right,

b) Use of or right to use a mine or a quarry;

c) Extraction, removal, or other exploitation right or right to extract, remove or otherwise exploit standing timber or a natural resource;

d) The right to extract, remove, or otherwise exploit standing timber or a natural resource;

e) Use of or right to use a film, a videotape, a tape for radio broadcasting;

f) Supply of scientific, technical, industrial, or commercial knowledge or information;

g) Total or partial forbearance of the use of, or the grant of a right to use, property or a right referred to in any of paragraphs (a) to (e);

h) Supply of assistance that enables the application or use of anything in any of paragraphs (a) to (f); and

i) Total or partial forbearance of the supply of knowledge or information or assistance referred to in paragraph (f) or (h).

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