Toby and Sammy are brothers and New Zealand tax residents. On 1 April 2022, they incorporated Oresome Trading Limited (OTL) to trade in precious metals and commodities. OTL elected to become a look-through company (LTC) from 1 April 2022.

 

Toby and Sammy talked to their friends and family about investing their capital in OTL. The following share purchases occurred during the 2023 income year:

Georgia invested in OTL shares as an individual. Georgia is Toby and Sammy's sister by adoption.

Albus and Tru invested in OTL shares via the Sirius Investment Trust (SIT), of which they are the only trustees and beneficiaries. SIT has made annual beneficiary distributions to Albus and Tru since its inception in 2019. Albus and Tru are not related to each other or any of the other investors in OTL.

Do Only Good Limited (DOG), a New Zealand tax resident LTC, also invested in OTL shares. The sole shareholder of DOG is Louis, who is not related to any of the other investors in OTL.

Required: Explain whether OTL will be able to retain its LTC status with the introduction of the new investors.

2. Visionary Ventures Limited (VVL)

Visionary Ventures Limited (VVL) is a New Zealand tax resident company, which provides consultancy services to start up enterprises on how to scale their businesses and attract investors. Emani, the director of VVL, is seeking advice on the requirements related to paying imputed dividends for the financial year ending 31 March 2023.

On 1 November 2022, the company paid an interim net dividend of $16,700 to its shareholders, with imputation credits of $5,700 attached. No other dividends have been paid during the 2023 income year.

Emani has proposed that, on 31 March 2023, VVL pay its shareholders a final net dividend of $11,900 with imputation credits attached.

VVL has estimated after-tax profits amounting to $174,400 for the financial year ending 31 March 2023. The credit balance of its imputation credit account directly before the proposed dividend in March is $36,000.

You are a tax advisor in the accounting firm Elite Financial Consultants (EFC). You have been asked to advise on the following client situations for the income year ended 31 March 2023. The clients (and their respective situations) are not connected to one another.

Please use Income Tax Act 2007 as reference https://www.legislation.govt.nz/act/public/2007/0097/latest/DLM1512301.html

 

Required: Explain and calculate the maximum amount of imputation credits that VVL can attach to the dividend on 31 March 2023, without breaching the benchmark dividend rules. Assume that VVL does not file a ratio change declaration. Ignore the impact of resident withholding tax (RWT).