What conditions must securities meet to qualify for community investment tax relief under ITA 2007 section 346?

Securities must satisfy two conditions. Condition A requires they be subscribed for wholly in cash and fully paid for on the investment date, with no deferred payment undertakings. Condition B requires they carry no right to be redeemed, converted, or exchanged for redeemable instruments within the five-year qualifying period.

What does 'fully paid for' mean under section 346 for community investment tax relief purposes?

Under section 346, securities must be paid for entirely in cash on the investment date itself. If there is any undertaking or agreement to pay the CDFI cash at a future date in connection with acquiring the securities, they are not treated as fully paid for. This is stricter than the general company law meaning of fully paid.

Why does section 346 restrict redemption and conversion rights on qualifying securities?

The restriction ensures the investment remains genuinely committed for the full five-year qualifying period. Securities must not carry any present or future right to be redeemed within five years, nor any right to convert into or exchange for loans, shares, or other instruments that are themselves redeemable within that period, preventing early recovery of invested funds.

Can securities with a deferred payment arrangement qualify for community investment tax relief?

No. If an investor agrees to pay any part of the subscription price at a future date rather than in full on the investment date, Condition A under section 346 is not met. Even if the investor intends to pay the full amount eventually, the existence of a deferred payment undertaking disqualifies the securities from community investment tax relief.

Income Tax Act 2007 section 346

Conditions to be met in relation to securities

Section 346 sets out the two conditions that securities must satisfy in order to qualify for community investment tax relief.

Securities must be subscribed for wholly in cash and fully paid for on the investment date, with no deferred payment undertakings permitted.
Securities must not carry any present or future right to be redeemed within the five-year period.
Securities must not be convertible into or exchangeable for any loan, securities, shares, or other rights that are redeemable within the five-year period.
If there is any undertaking to pay the CDFI cash at a future date in connection with acquiring the securities, they are not treated as fully paid for.

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