In moving towards a Single Economic Market between New Zealand and Australia, New Zealand has made a submission to Australia on the review of its tax system. The submission proposes mutual recognition of imputation and franking credits.
Australia and New Zealand are now the only countries in the OECD that have imputation systems. The two systems are broadly similar, but differences do exist. It is not proposed to introduce a complete alignment of the two systems, but for both countries to amend their tax legislation so imputation credits and franking credits are be deemed to be the same and have similar tax consequences. The credits would be allowed to be used in either country, regardless of which of the two countries the underlying corporate tax was paid.
Some issues that need to be considered prior to the introduction of mutual recognition are the alignment of the date the balances of the credits are measured, anti-streaming provisions, differences in the tax base (e.g. Australia has a capital gains tax, but New Zealand does not), the definition of dividends, the existence of arbitrage opportunities, changes in corporate tax rates, and the flexibility of either country to make major changes to tax policy.