Plain language law

New Zealand law explained for everyone

Income Tax Act 2007

Deductions - Employee or contractor expenditure

DC 9: Restrictive covenants or exit inducements

You could also call this:

“Deducting payments for agreements not to compete or to leave employment”

You can deduct money you spend that becomes income for someone else under section CE 9 (Restrictive covenants) or CE 10 (Exit inducements).

However, you can’t do this if the other person does work for you, and the money you would have paid them for their work (if they hadn’t received income under section CE 9 or CE 10) would have been a capital expense.

This rule overrides the capital limitation. You still need to meet the general permission, and the other general limitations 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=DLM1513778.

Topics:

Money and consumer rights > Taxes

DC 8: Attribution of personal services, or

“How income from personal services can be assigned to you”

DC 10: Disposal of business: transferred employment income obligations, or

“Tax rules when selling a business and transferring employees”

Part D Deductions
Employee or contractor expenditure

DC 9Restrictive covenants or exit inducements

A person is allowed a deduction for expenditure that they incur that is income of another person under section CE 9 (Restrictive covenants) or CE 10 (Exit inducements).
This section does not apply if—
the other person performs services for the person; and
expenditure that the person would have incurred for the services, if the other person had not derived an amount that is income under section CE 9 or CE 10, would have been of a capital nature.

This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.

Compare

2004 No 35 s DC 8