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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 deductions for payments to business partners who work for you"

Illustration for Income Tax Act 2007

You can claim a deduction for payments made to a working partner in your business. This is if they have a contract of service that says what work they must do and how much they get paid. The contract must be in writing and agreed to by all partners. You can only claim a deduction for the amount stated in the contract and any bonus paid. This rule does not apply if your business mainly invests money or deals with property. If you have a contract of service, it must specify the work to be done, the pay, and be agreed to by all partners in writing. This section is overridden by section GB 23 which talks about excessive pay to relatives. The general rules for deductions still apply to this section. You need to follow these rules when claiming a deduction for payments to a working partner.

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

      5. 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.

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