Monday -Friday - 9:00 - 18:00 New Zealand Time

New tax rules favouring shareholder employees of small companies

Shareholder employees of small(close) companies often get themselves into tax problems mainly due to cash flow issues. They receive irregular income and variable amounts. Their income pattern depends on many factors industry growth, weather, their health, natural disaster, therefore annual salary is unknown factor. Current rules allow them to treat total drawings for the year to be treated as salary at the end of the year. For simplicity and filing of tax return purpose this works but they struggle to find payment of income tax.


New Tax Rule

New rules in application from 01-04-2017 allow them to use combination of regular salary/wage and end of year shareholder salary.  Section RD 3C of ITA 2007 allows for a shareholder-employee of a close company to choose to split their earnings so that the base salary is subject to PAYE and the variable amount is paid out pre-tax, and is therefore likely to be subject to provisional tax instead.

Technical points of the application are not clear yet, I guess the payroll software will be updated to account for fixed and variable portion of the pay. With clients like this we are already using fixed and variable portions of their pay, we generally put them on a fixed payroll with annual pay of $40k-$60k a year. Depending on their end of year profit the balance is declared as shareholder salary. This way majority of their tax is paid.


Generated with MOOJ Proforms Version 1.5

Please fill the form below to contact us! 


*Required information.