Income Tax Act 2007 section 687

Income tax advantage

Section 687 defines what constitutes an "income tax advantage" for the purposes of the transactions in securities rules, and explains how the amount of that advantage is calculated.

• An income tax advantage arises where the income tax that would be due if a payment were treated as a distribution exceeds any capital gains tax actually payable on the same amount, or where income tax would be due but no capital gains tax is payable at all
• Any part of the relevant consideration that exceeds the maximum amount that could have been paid as a distribution to the person (or an associate) at the time the relevant condition in section 685 is met is excluded from the calculation
• The size of the income tax advantage is either the difference between the hypothetical income tax and the actual capital gains tax, or — where no capital gains tax is payable — the full amount of the hypothetical income tax
• For these purposes, "distribution" excludes certain technical distributions that only count as distributions under the Corporation Tax Acts because they involve redeemable share capital or bonus securities (paragraphs C and D of section 1000(1) CTA 2010)