Other Company Tax Issues

Shareholder-Employees in Close Companies
With regard to payments to shareholder-employees, deduct PAYE from:

  • Regular salaries paid to shareholder-employees for pay periods of one month or less
  • Other payments to shareholder-employees that IRD consider liable for PAYE.

Do not deduct PAYE from irregular salary payments made to a shareholder-employee. Include all shareholder-employee salaries where PAYE has not been deducted in the Income tax return companies (IR4).

Loans or Advances to Shareholders
The Commissioner may deem advances or loans to shareholders or directors as dividends paid by the company where he considers that the situation is in fact a mere “distribution of income”.

Watch this.

Ensure that interest is payable on the loan or else ensure that the account is a normal trading type account with a genuinely fluctuating balance. Where the loan is considered a dividend it becomes assessable income and extra tax is payable by the shareholder or director.

Watch Remuneration from Company
Where salaries, director’s fees and other payments are made by the company to shareholders or officers, the Commissioner may disallow or reduce such payments if in his opinion it is excessive. The disallowed amount is then treated for tax as a dividend to the recipient, without any extra tax consequences. However, the company misses out on this amount as a deduction and thus its tax is increased.

Own Your Own Flat Companies
Own your own flat companies generally charge levies to their shareholders to cover the administration and management of the company, as well as repairs and depreciation on the assets.

These companies are similar to trust companies and any portions of the levies that are paid by shareholders and not used during the year are simply held in trust. Those levies do not constitute income to the company.

If a shareholder uses the flat for producing income, then depreciation at the standard depreciation rates will be allowed as a deduction. If it is hard to work out the actual cost, then the formula that is used is:

  • Government valuation of improvements, divided by total government valuation, multiplied by the total cost. The proportion of the cost belonging to the shareholder is then calculated in the proportion that the shareholding bears to the total shareholding of the own your own flat company.‘Flat owning’ means a company;

  • whose governing agreement provides for each registered shareholder to have occupational use of a residential property in New Zealand that is owned by the company, and;

  • where the assets of the company comprise no more than:

    • residential property in New Zealand
    • funds reserved for admin and management, as well as repairs and maintenance and other outgoings on the property.