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Income Tax Act 2007

Deductions - Employee or contractor expenditure

DC 4: Payments to working partners

You could also call this:

"Claiming money back for paying a working business partner"

Illustration for Income Tax Act 2007

You can claim a deduction for payments made to a working partner in a business. The partner must be doing work that is necessary for the business and they must be doing it while they are employed. The amount you can claim is limited to what is allowed in the employment contract. You cannot claim this deduction if your business is mainly about investing money or buying and selling property. This rule does not apply if section GB 23 (Excessive remuneration to relatives) applies. Also, section HG 2 (Partnerships are transparent) does not apply in this case. A contract of service is an agreement that outlines the work to be done and how much the partner will be paid. This agreement must be in writing and signed by all partners. This rule is in addition to the general rules about deductions, and the usual limits still apply.

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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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"Rules for claiming deductions on payments to owners who work for their company"

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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).