Tax Dept changes stance on preference shares

Press, Volume CXVI, Issue 34099, 11 March 1976, Page 14

Tax Dept changes stance on preference shares

The Inland Revenue Department has reviewed its earlier stance on the new class of specified preference shares which was announced in last year’s Budget.

In a statement issued after discussions with the New Zealand Stock Exchange Association, the Commissioner for Inland Revenue (Mr T. M. Hunt) said the main question which had caused concern was over the terms on which specified 1 preference shares could be I converted into other shares ' or stock. ’ The Department had earlier indicated that it considlered the terms of any coni version would have to be on. | the basis that the. par value; of the preference shares could not produce more than : the equivalent market value I of other shares. But the Commissioner said I he now considered that the

terms of any conversion were a matter for determination by the company making the preference share issue. A company would for example be free to offer conversion on a one-for-one ’ basis, even if this entailed a gain for the shareholder on conversion. An entitlement, on conversion. to bonus issues made during the currency of the preference shares can form part of the conversion arrangement, but bonus ■share issues made while the preference shares are still current would offend the stipulation that specific prefer ence shares may not participate in profits. Mr Hunt said the Depart-

t ment considered that a twostep conversion arrangement ; — redeem in cash and then pay for ordinary shares — r is in substance a conversion, r and is therefore subject to! ! the provision which prohi-i i bits conversion within five: i years of the date of the allotment of the preference; - shares.