Q3a ICA: Current Year

Q3a section 1 – Imputation Credit Account: current year

The purpose of section 1 is to set out all the items that make up the Imputation Credit Account for the imputation credit year. The imputation credit year runs from 1 April to 31 March, regardless of the client’s balance date. It essentially records all the tax transactions that impact the Imputation Credit Account.

The information contained within this section will reflect the Imputation Credit Account, as required to be filed with the IRD (IR4 or IR4J).

Some numbers are automatically populated from other worksheets, from within the workpapers but you may need to add extra items (both credits and debits) where required.

1) Opening balance

Enter the amount as a positive number, this will display the balance with brackets.

If you have previously used CCH Workpapers, use the Rollover Data function to carry forward prior year data from previous workpapers, then check the opening balance amount:
- is the same as the prior year workpaper closing balance of the ICA, and
- agrees to the closing balance of the prior year’s income tax return (IR4 or IR4J).
If you have not previously used CCH Workpapers, enter the closing balance from the prior year’s income tax return (IR4/IR4J) into the opening balance cell.

2) Provisional tax payments

Check that all payments made during the imputation year (1 April to 31 March) have been included. To do this, check the “As per Q1 - taxation due amount”, which is automatically populated from Q1, corresponds with the IRD statement of account or IRD Account Lookup screens for the current imputation year. Only include payments made within the period 1 April to 31 March, regardless of balance date. In other words, do not include provisional tax payments that relate to the current year but made after 31 March.

3) Payments made for prior years not already recorded in ICA

Check the IRD Statements of Account/IRD account lookup for prior periods, to ensure all provisional tax payments made within the period 1 April to 31 March have been accounted for (this may have already been performed when preparing the Q1 workpaper), in particular look for:
- Transfers in and out - this could include from other tax types which were applied against provisional tax liabilities.
- Transfers in from prior income tax years, which should not increase the ICA balance.
  Where transfers in from prior income tax years are reflected in this section, they will need to be adjusted out in the other debits section (see below) of this section.
Enter the effective date in Column C for each transfer.
Check last year’s Q1 worksheet in respect of last year’s terminal tax due (line 42), to compare payments made in the current year, which relate to the prior year. This should be checked and reconciled with the terminal tax payment for the prior year in [4] below.

4) Terminal tax payments

The “Terminal tax payment [prior year] tax year” paid during the current imputation credit year should be as per the amount calculated in the prior year Q1 workpaper, if it was paid during the current imputation year.

To ensure that the payment is recorded in the correct period, check the following for any transactions already recorded:

the prior year workpapers; and
compare against the IRD Statements of Account for the current year.
Check for any other voluntary terminal tax payments made during the imputation credit year against the IRD Statements of Account/IRD Account Lookup for prior and future income tax years.

As with the terminal tax payment for the prior year, the IRD Statement of Account will record the effective date of payment. Any effective dates of payment falling within the current imputation credit year (1 April to 31 March) will need to be recorded in this section. Enter the effective date in Column C for each transfer.

Ensure any amounts considered at [3] above are taken into account, when recording any terminal tax payments made for the prior year, which fall within the current imputation year.

5) Other (UOMI and penalties)

The two items here are Use of Money Interest and Amounts paid as penalties. Look for the following items:

Credit use of money interest which has been applied to core tax balances during the imputation credit year - these can be included in column H.
Payments which have been in full or part applied to repaid penalties imposed by the IRD for late filing, late payment or shortfalls identified - these cannot be counted as credits against the Imputation Credit Account and need to be entered as a negative amount in column H.

Credit use of money interest notes:

With respect to Use of Money Interest credited from the IRD, this will need to be entered in this section where the Use of Money Interest credited has been used as a tax payment to satisfy the tax liability of the client, if it has not already been included in provisional tax payments made in 2 above. This amount should normally have been recorded in Q1, if it is being used as a tax payment.
Any Use of Money Interest should be obtained from and checked against the IRD Statement of Account.
Ensure the transaction has the effective date during the current imputation credit year, i.e. during the period 1 April to 31 March.

Debit use of money interest notes:

Any Use of Money Interest paid by the client will not give rise to imputation credits and should not be reflected in this section. This can be determined by checking the IRD Statements of Account to see if Use of Money Interest has been charged by the IRD (and then ensuring any settlements of these amounts are not reflected as tax payments in this section). Any Use of Money Interest that has been paid and is reflected in the tax payment lines should be entered in “Amounts paid as UOMI or penalties”, as with late payment penalties below.

Late payment penalties notes:

Amounts paid as penalties imposed to do not give rise to imputation credits, therefore any penalties paid that have been reflected as payments made in any other amounts in this section will need to be reversed here.

6) RWT attached to interest and dividends received from T2

This amount is automatically populated from T2. Cross-check T2 and RWT certificates to ensure all RWT credits are being picked up in this amount.

Imputation credits from T2 – this amount is also automatically populated from T2. This amount should be cross-checked with T2 and dividend certificates to ensure all Imputation Credits are picked up in this amount.
PIE income - there may be situations such as Listed PIE Income being received with credits attached, which have the option of being included in taxable income. Where such an amount in included in taxable income, it is important to ensure the attached imputation credits are also reflected in this amount. In this case, unprotect the sheet and add in the imputation credits related to PIE income included in taxable income.

It is important to check the dividend and interest amounts have been accounted for correctly in terms of being recorded gross or net. For example, a gross amount of interest would be the cash amount received plus the amount of the RWT credit attached to it. Likewise, gross dividends would be the cash amount received plus the amount of RWT credits and Imputation credits attached to it. Checking this is been done correctly will help ensure the amount of RWT and imputation credits are recorded correctly and also that the correct amounts of interest and dividends are being accounted for in the tax calculations contained in the workpapers. These amounts are automatically populated from T2, however, the amounts should be checked to ensure all correct amounts of RWT and Imputation credits have been picked up.

7) Other credits

Where other credits relating to income tax paid have been received, these will need to be recorded here. Any transaction that affects the income tax liability and has an effective date falling within the current imputation year that has not already been recorded should be recorded here: Examples include:

Transfers in from another tax type, such as credit amounts of PAYE or GST, which have been transferred in to the income tax account with an effective date falling with the imputation credit year.
Transfers in from another taxpayer, which have been transferred in to the income tax account with an effective date falling with the imputation credit year.

8) Income tax refunds

Record amounts of income tax that have been refunded during the imputation credit year (1 April to 31 March). The prior year Terminal tax refund is explicitly mentioned, but also any other amounts of refunds will need to be entered in this section. This would include refund in respect of other periods paid in the current year.

Any credits, such as use of money interest, are not refunds of income tax. Therefore, they will not be required to be adjusted here.

9) Imputation credits attached to dividends paid

Using dividend certificates and/or dividend workpapers prepared:

Enter the date of payment in column C.
Enter the description in column D.
Enter the sum of imputation credits attached to dividends paid in column H.

10) Other debits

Debits which reduce the total amount of imputation credits available and do not fall within the above categories can be entered here.

Review the IRD statements of accounts for other debit transactions that occurred during the imputation credit year, Examples of these include:

Credits forfeited, which may arise where there has been a shareholding change in a company resulting in the loss of imputation credits. A worksheet dealing with shareholder change calculations is contained within the Dividend Workpapers.
Small balance write-off, where the IRD has written of an amount of tax (normally less than $5).
Payments applied to penalties which has not been separated above.

Q3a section 2 – Imputation Credit Account: reconciliation to taxable income and tax paid

The purpose of section 2 is to check the imputation credit balance is correct, by reconciling the Imputation Credit Account balance (from section 1 above) to the taxes payable that would be expected to be payable on the taxable income derived to date.

The taxable income amounts in this section form the basis of the retained earnings reconciliation (Q3b workpaper) which ensures all tax paid has been picked up in the Imputation Credit Account and financial accounts.

1) Taxable income

This column records the taxable income to date for the company.

Populate the taxable income for each time period - if you have used CCH Workpapers for a previous year, roll forward taxable income for the previous years using the rollover data function.
View the current year taxable income, which will populate from the A1 Workpaper.
Check taxable income has been populated correctly.

2) Final income tax on taxable income

This column records the income tax that was payable each year at the applicable tax rate.

Populate the tax payable for each time period - if you have used CCH Workpapers for a previous year, roll forward tax payable for the previous years using the rollover data function.
View the current year taxable income, which will populate from the A1 Workpaper.
Check tax payable has been populated correctly.

Enter income tax payable as a positive amount. However, it will be displayed with brackets.

3) ICs attached to dividends

This column records imputation credits attached to dividends distributed to date.

Populate the imputation credits attached to dividends in column G - if you have used CCH Workpapers a previous year, roll forward imputation credits attached for the previous year’s using the rollover data function.
Update imputation credits attached to dividends paid during the current imputation year (1 April to 31 March). Use the amounts calculated in the Dividend Workpapers, if these have been used for dividend payments during the year.

Dividends paid in a certain period after the two tax rate changes (in 2008 and 2011) were able to have imputation credits attached at a ratio using the prior income tax rate. Accordingly, dividends that were “over-imputed” need to be entered in the two separate lines (i.e. the “Divis pd after 2008 at 33% imp credits” and “Divis pd after 2011 at 30% imp credit”) to ensure the Retained Earnings reconciliation can correctly reflect the impact of this.

Adjustments

The balance of the Imputation Credit Account before any adjustments is populated in the total based on the entries made in respect of taxable income, expected tax payable and imputation credits attached to dividends distributed.

From this amount, further adjustments may be required to ensure this amount reconciles with the balance of the Imputation Credit Account as recorded in section 1 above.

To perform the reconciliation:

1) Credits forfeited

Credits lost in prior years will need to be recorded here. The main example of this is where imputation credits have been forfeited through a shareholding change and continuity has been lost.

Record the sum of credits lost in prior years.
Add credits that have been forfeited in the current year, the amount from section 1 above representing the loss of credits from a shareholding change (in other debits) should also be included in this amount.

2) Overseas tax credits

Overseas tax credits do not give rise to imputation credits. However, they do give rise to a credit against New Zealand income tax payable (where the gross amount has been returned).

The brought forward balance of the overseas tax credits will be the accumulated balance from the prior year’s workpapers.

The Current Year amount will be automatically populated from the T2 workpaper. However, care should be taken to ensure all overseas tax credits have been entered correctly.

3) Credits not utilised

Any credits which have not been utilised also need to be tracked and accounted for in this reconciliation. These may arise where imputation credits received on dividends were imputed at a higher rate than the current year’s income tax rate (e.g. dividends paid after 2011 imputed at a 30% rate).

4) Income tax refund due

As a tax refund due effectively represents an overpayment of tax, this amount will need to be accounted for here, to reconcile the income tax payable above to the balance of the Imputation Credit Account. This is populated from Q1 workpaper.

Check to ensure it represents the actual amount of tax expected to be refunded to your client.

5) Provisional tax paid after 31 March

For the current year, any provisional tax paid in respect of this year will need to be adjusted for, as it will not be contained within the current year imputation credit balance. This amount is drawn from Workpaper Q1. Therefore, check that the:

Q1 workpaper has been completed correctly, in respect of tax payments made, and the effective dates of each of those tax payments.
Provisional tax payments made post 31 March of current year against statements of account, and match what is recorded here.

6) Prior year other taxes paid after 31 March (RWT, Imputation Credits, etc.)

As with provisional tax, any other credits relating to the current year received after 31 March will need to be adjusted for, as it will not be contained with the current year imputation credit balance.

Where an Imputation Credit Account is required to be prepared for a non-standard balance date, or you want to reconcile a non-standard balance taxpayer’s Imputation Credit Account to the non-standard year, use the reconciliation to 31 March section of the worksheet at line 92.

7) Prior year terminal tax due

Where terminal tax is due this amount will be populated from Workpaper Q1. This represents tax that has not been paid but accounted for in the first table of the “reconciliation to taxable income & tax paid” and therefore, will be a reconciling item in the adjustments section.

8) Small debit balance write-off by IRD

Any amounts written off by the IRD need to be included here. Note as this is a reconciliation of a cumulative amount, all small balance write-offs will need to be included in this line. Accordingly, it will be any current year small balance write-offs plus the brought forward amount from prior years.

9) Prior years tax credits held by IRD - exclusive of interest

These amounts could include balances of unrefunded tax that are sitting in prior years income tax years. Check the IRD Statements of Account or IRD Account Lookup. Interest is excluded on these amounts, as it does not give rise to imputation credits, unless the interest is applied as tax paid against an income tax liability of the client.

10) Prior years tax arrears (incl prior year terminal tax if paid after 31 March) - excluding penalties and interest

Adjust for any arrears for prior years still outstanding, as this represents tax still required to be paid (and accordingly, is not in the imputation credit balance). This amount will be populated from Q1, however, this should be checked to ensure this represents tax due (and not penalties or interest).

Check the IRD statements of account for prior years to identify any income tax balances outstanding as at 31 March.

11) ICs converted to losses

Where excess imputation credits have been converted to losses, an adjustment will need to be entered on this line. The amount of this adjustment will be the amount of imputation credits (and not the corresponding amount of the losses).

For example:

Client has the following taxable loss for the prior year income year:

Operating loss	(250,000)
Net dividend received	7,200
Imputation credits attached to dividend received	2,800
Taxable loss	(240,000)

Accordingly, as the imputation credits are unavailable to be utilised (due to a taxable loss arising), the imputation credits are converted into a loss. Therefore, the loss to carry forward will be:

Taxable loss from above	(240,000)
Imputation credits converted to losses	(2,800 x 72/28) (10,000)
Total losses to carry forward to the 2018 income year	2,800
Taxable loss	(250,000)

For the prior year income year, the taxable income recorded in column E will be (240,000) and an adjusting amount of 10,000 will be recorded in this cell.