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New Zealand law explained for everyone

Income Tax Act 2007

Deductions - Employee or contractor expenditure

DC 11: Transfers of employment income obligations to associates

You could also call this:

“Rules for paying employees when connected companies change employers”

This section of the law talks about what happens when you change jobs from one company to another, and the two companies are connected in some way. Here’s what you need to know:

If you start working for a new company that’s connected to your old company, and your new employer takes on the responsibility to pay you, there are some rules about this. This doesn’t apply if your old employer sold their business or part of it to your new employer.

In this situation, your new employer can claim a deduction for the money they pay you, just like your old employer would have if you had stayed with them. This is allowed even though it might seem like a capital expense, which usually can’t be deducted. However, the new employer still needs to follow other general rules about deductions.

Remember, this only applies when your old and new employers are connected in some way, and when your new employer takes on the responsibility to pay you from your old employer.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1513784.

Topics:

Money and consumer rights > Taxes

Work and jobs > Worker rights

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

“Tax rules when selling a business and transferring employees”

DC 12: Loans to employees under share purchase schemes, or

“ This rule about company loans for employee share purchases no longer applies ”

Part D Deductions
Employee or contractor expenditure

DC 11Transfers of employment income obligations to associates

This section applies when—
an employee of a person (person A) becomes an employee of another person (person B); and
person A and person B are associated persons at the time; and
person B assumes person A’s obligation to pay an amount of employment income to the employee; and
the employee’s becoming an employee of person B does not result from the disposal by person A of a business, or a part of a business, to person B.

Person B is allowed a deduction for the amount of employment income if person A would have been allowed a deduction for the amount if the transfer had not occurred.
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 10

Notes

Section DC 11(1)(d): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).