Plain language law

New Zealand law explained for everyone

Income Tax Act 2007

Timing and quantifying rules - Spreading of specific income

EI 9: Matching rule for employment income of shareholder-employee

You could also call this:

“When shareholder-employees count their income from the company for tax”

You might be a shareholder-employee if you own shares in a company and also work for that company. When the company pays you for your work, it’s called employment income. This rule explains when you need to count this income for tax purposes.

If the company can claim your pay as a business expense, your income is usually counted in the same tax year that the company claims it. However, there’s an exception. Sometimes, the company might pay you for work that you haven’t done yet. In this case, part of your income might be counted in a later tax year.

The part of your pay that’s for future work is called an “unexpired portion”. This part isn’t counted right away. Instead, it’s counted in the tax year when you actually do the work. This way, your income matches up with when you earn it, not just when you get paid.

Remember, these rules are about when you count the income, not about how much you get paid. They help make sure that your income is reported at the right time for tax purposes.

This text is automatically generated. It might be out of date or be missing some parts. Find out more about how we do this.

View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1515082.

Topics:
Money and consumer rights > Taxes
Previous

EI 8: Disposal of land to the Crown, or

“How to spread income from selling land to the government over several years”

Next

EJ 1: Spreading backward of deductions for costs of timber, or

“How to spread timber costs over time when selling timber or forested land”

Part E Timing and quantifying rules
Spreading of specific income

EI 9Matching rule for employment income of shareholder-employee

  1. If a company is allowed a deduction for expenditure on employment income that is paid or is payable to a shareholder-employee under section CE 1 (Amounts derived in connection with employment), the income is allocated in the way set out in subsections (2) and (3).

  2. The income is allocated to the income year to which the deduction allowed to the company is allocated, except for an amount equal to any unexpired portion for the income year of the company’s expenditure under section EA 4 (Deferred payment of employment income).

  3. The remaining income is allocated to the income year or years in which the corresponding amount of the company’s expenditure on the income is no longer treated as an unexpired portion.

Compare