KEY POINTS:
Thousands of mum and dad investors stand to lose out on millions of dollars worth of tax credits on dividend payouts from big listed companies within the next few years unless last minute changes are made to new tax legislation.
A bill facilitating the drop in the corporate tax rate from 33c in the dollar to 30c is currently before legislators and is scheduled to take effect from next year.
The legislation currently provides a two-year window enabling firms that have stockpiles of imputation credits accrued at 33c in the dollar to be passed on to shareholders.
However some corporates, notably Contact Energy which earns virtually all of its income in New Zealand have particularly large stockpiles.
Contact has $190 million in credits but is unlikely to be able to utilise them all within the "grandfathering" period.
Its distribution policy is constrained by several factors including capital expenditure requirements related to its $2 billion renewable energy investment programme.
"When you've got a large organisation that's got a lot of levers to pull in terms of distributions, the window that's been provided by the Government isn't enough," said Deloittes tax partner Thomas Pippos.
"They would like to continue to allocate credits at 33c in the dollar for the forseeable future to enable the shareholders to benefit from the tax that's been paid at 33c in the dollar."
Contact has made a submission to the select committee currently considering the legislation, asking for an extension until 2013.
"It basically provides a five-year window to enable organisations to more smoothly utilise their historic imputation credits without it negatively impacting shareholders,"said Pippos.
It is local retail shareholders, who own about 24 per cent of Contact's stock, that stand to lose out if the extension is not granted.
It is not an issue for institutional shareholders who will themselves be on a 30c tax rate from next year.
Revenue Minister Peter Dunne said the Australian Government had provided no grandfathering period when the same issue arose there.
While the government initially felt that was the easiest way to go, it reconsidered.
"We thought a two-year period would be sufficient to enable most of those credits to be extinguished.
"We're not of a mind to shift from that, but obviously we'll await the select committee's advice," the minister said.
