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Income Tax Act 2007

Tax credits paid in cash - Adjustment of net income for family scheme

MB 4: Family scheme income of major shareholders in close companies

You could also call this:

“How income from owning a large part of a small company affects your family tax credits”

When you own a big part of a small company, this rule helps figure out how much money to include in your family scheme income. This is important for working out your tax credits.

The amount you include is the bigger of zero or a special calculation. This calculation looks at how much of the company you own, how much the company earned, and how much it paid out in dividends.

The calculation also includes any shares owned by your children or your partner’s children. It considers you, your partner, and other caregivers of these children as ‘major shareholders’.

If the company puts money into or takes money out of a main income equalisation account, this can change the calculation. A main income equalisation account is a special account that helps smooth out income between good and bad years.

Remember, this rule only applies if you’re a major shareholder on the last day of the company’s income year. The company’s income year is the period it uses for its tax calculations.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1518465.

Topics:
Money and consumer rights > Taxes
Family and relationships > Children and parenting
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“How your business and investment activities are treated for family scheme income”

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Part M Tax credits paid in cash
Adjustment of net income for family scheme

MB 4Family scheme income of major shareholders in close companies

  1. This section applies for the purposes of determining the amount that is included in the family scheme income of a person for an income year when the person is a major shareholder in a close company (the company) on the last day of the company's income year.

  2. The amount included in the person’s family scheme income is the greater of—

  3. zero; and
    1. the amount calculated using the formula in subsection (3), adjusted, if applicable, by subsections (7) and (8) for main income equalisation account amounts.

      1. For the purposes of subsection (2), the relevant amount is calculated using the formula—

        (person’s interest + attributed interest) × (income − dividends).

        Where:

        • In the formula in subsection (3),—

        • person's interest is the percentage voting interests for the company held, on the last day of the company's income year, by the person:
          1. attributed interest is the amount calculated using the formula in subsection (5):
            1. income is the net income of the company for the company's income year:
              1. dividends is the total dividends paid by the company for the company's income year.

                1. For the purposes of the item attributed interest in subsection (4)(b), the relevant amount is calculated using the formula—

                  dependent child interest ÷ relevant major shareholders.

                  Where:

                  • In the formula in subsection (5),—

                  • dependent child interest is the total percentage voting interests for the company held, on the last day of the company's income year, by—
                    1. the person's dependent children:
                      1. dependent children of the person's spouse, civil union partner, or de facto partner:
                      2. relevant major shareholders is the total number of the following people who are major shareholders of the company on the last day of the company's income year:
                        1. the person:
                          1. the person's spouse, civil union partner, or de facto partner:
                            1. principal caregivers of the dependent children described in paragraph (a)(i) and (ii), but ignoring principal caregivers already counted under subparagraphs (i) and (ii) of this paragraph.

                            2. For the purposes of subsection (2)(b), if the company makes a main income equalisation deposit for the company’s income year, the amount of the deposit is added to the item income in the formula in subsection (3).

                            3. For the purposes of subsection (2)(b), if the company receives a main income equalisation refund for the company’s income year, the amount of the refund is subtracted from the item income in the formula in subsection (3).

                            Notes
                            • Section MB 4: replaced, on (applying for the 2014–15 and later income years), by section 109(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
                            • Section MB 4(2): replaced (with effect on 1 April 2011), on , by section 207(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                            • Section MB 4(7) heading: inserted (with effect on 1 April 2011), on , by section 207(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                            • Section MB 4(7): inserted (with effect on 1 April 2011), on , by section 207(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                            • Section MB 4(8) heading: inserted (with effect on 1 April 2011), on , by section 207(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                            • Section MB 4(8): inserted (with effect on 1 April 2011), on , by section 207(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                            • Section MB 4 list of defined terms main income equalisation account: inserted (with effect on 1 April 2011), on , by section 207(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                            • Section MB 4 list of defined terms main income equalisation deposit: inserted (with effect on 1 April 2011), on , by section 207(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                            • Section MB 4 list of defined terms main income equalisation refund: inserted (with effect on 1 April 2011), on , by section 207(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).