Tax & Companies

Taxation of Company Profits
Profits derived by a company are taxed at the company tax rate of 33 cents in the dollar.

Companies can distribute money in 3 ways:

  1. Shareholder-employees can periodically draw money from the company. At the end of the year, the company calculates a salary amount on which the shareholder will have to pay income tax.

  2. Shareholders who are also employees of the company can be paid a salary with PAYE taken out in the normal way. These salaries are deductible as a business expense for the company.

  3. The company can pay dividends to shareholders out of the profits that remain after tax. It may also attach tax credits to these dividends called imputation credits.

How Company Tax Is Calculated

The tax that is payable by a company for any particular income year will be determined by multiplying the company rate of tax against the taxable income of the company. This will produce a tax liability against which allowable rebates can be deducted and any surcharges that apply added.

The result will be the company’s income tax liability against which credits for tax already paid can be offset. If the total credits exceed the company’s tax liability, then they are first to be set off against other outstanding tax liabilities that the company may have, and any remaining excesses offset in the following order:

  • Non-refundable credits (any available credits from the branch equivalent tax account or policy holder credit account, or credits for foreign tax paid).

  • Credits for supplementary dividends paid under the foreign investor tax credit regime.

  • Convertible credits (imputation credits etc).

  • Refundable credits (provisional tax etc).

These rules were designed to maximise the credits received for foreign taxes and other amounts which are capped at the level of the domestic tax liability.