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Income Tax Act 2007

Deductions - Employee or contractor expenditure

DC 4: Payments to working partners

You could also call this:

"Money you can claim back for work you do in your own business"

If you are a partner in a business, you can claim a deduction for payments made to you for work you do. You must have a contract that says what work you will do and how much you will be paid. The contract must be in writing and agreed to by all partners.

You can only claim a deduction for the amount stated in your contract, including any bonus. But this rule does not apply if you are in a business that mainly invests money or deals with property. Also, if you are paid too much, section GB 23 applies instead of this rule.

A contract of service is an agreement that outlines your job and pay. It must be in writing and signed by all partners. This rule is part of the general rules about deductions, and the usual limits still apply. Note that section HG 2 does not apply to this rule.

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This page was last updated on

View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1513765.

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Part DDeductions
Employee or contractor expenditure

DC 4Payments to working partners

  1. A person who is a partner in a partnership is allowed a deduction for their share of a payment made under a contract of service to a partner who personally and actively performs duties that—

  2. are required to be performed in carrying on the business of the partnership; and
    1. are performed by the partner during the currency of the contract of service.

      1. This section does not apply to a partnership that is engaged wholly or mainly in investing money or in holding, or dealing in, shares, securities, investments, or estates or interests in land.

      2. The amount of the deduction is limited to the amount of the payment authorised by the contract of service and any bonus, whether or not the payment of a bonus is authorised by the contract.

      3. This section is overridden by section GB 23 (Excessive remuneration to relatives).

      4. Section HG 2 (Partnerships are transparent) does not apply for the purposes of this section.

      5. In this section, contract of service, for a partner and a partnership, means an agreement that—

      6. specifies the terms and conditions of the services to be performed by the partner; and
        1. specifies the amount payable to the partner for the performance of the services; and
          1. is entered into by all the partners in the partnership; and
            1. is in writing.

              1. This section supplements the general permission. The general limitations still apply.

              Compare
              Notes
              • Section DC 4(4B) heading: inserted (with effect on 1 April 2008), on , by section 42(1) (and see section 42(2) for application) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
              • Section DC 4(4B): inserted (with effect on 1 April 2008), on , by section 42(1) (and see section 42(2) for application) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).