What is the shareholder continuity test?

For companies that have more than one shareholder, the Shareholder Continuity Test is pretty important. Even if you currently only have one shareholder, shareholdings can change so the issue is an important one for all company owners.

Shareholder continuity refers to changes that have occurred to the number of shareholders and the nature of their shareholdings during the year.

Continuity impacts both tax losses brought forward from prior tax years as well as imputation credits.

Tax Losses from previous years 

If your company has tax losses from previous years, these are brought forward to the current year to be offset against any profits. This reduces the amount of tax you need to pay.

Companies can run into difficulty however if there has been significant change in the shareholding of the company.

For stand alone companies at least 49% of shares should be held by the same shareholders throughout the period. This is called the Shareholder Continuity Test. If continuity was less than 49%, all tax losses would be forfeited.

In a group of companies, the threshold is higher. One company can distribute the loss to a related company which is part of the same group so long as Shareholder Continuity exceeds 66%.

Imputation Credits

Imputation credits relate to company dividends. They mean that income is not taxed twice – once when it is earned by the company and a second time when it’s received by the shareholder.

Imputation credits can only be passed on when at least 66% of the company’s voting rights have not changed hands. Put another way, if shareholder interests in a group of companies were to change by more than 34%, imputation credits would be forfeited.


Both areas are important considerations. Even if you currently only have one shareholder, you may wish to sell down your shareholding as part of a succession plan. It’s really important you consider if this will impact either tax losses or imputation.

We are experts in the area so if you need any advice that is specific to your situation, please give us a call.


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