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Income Tax Act 2007

Deductions - Employee or contractor expenditure

DC 3B: Payments to working owners

You could also call this:

“Rules for claiming deductions on payments to owners who work for their company”

If you own part of a look-through company, you can claim a deduction for your share of payments made to working owners under an employment contract. The amount you can deduct is limited to what the contract allows, including any bonuses.

For this to apply, the working owner must have a written employment contract. This contract needs to spell out what the working owner will do, how they’ll do it, and how much they’ll be paid.

You can claim this deduction as long as it follows the general permission rules. Remember, the general limitations still apply to this deduction.

When we talk about a “working owner”, we mean someone who owns part of the company and also works for it under this special kind of contract.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM3683703.

Topics:
Money and consumer rights > Taxes
Business > Industry rules
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Part D Deductions
Employee or contractor expenditure

DC 3BPayments to working owners

  1. A person who has an effective look-through interest for a look-through company (an owner) is allowed a deduction for their share of a payment made under a contract of employment to a working owner.

  2. The amount of the deduction is limited to the amount of the payment authorised by the contract of employment and any bonus, whether or not the payment of a bonus is authorised by the contract.

  3. In this section, contract of employment, for a working owner, means an agreement that—

  4. specifies the terms and conditions of the services to be performed by the working owner; and
    1. specifies the amount payable to the working owner for the performance of the services; and
      1. is in writing.

        1. This section supplements the general permission. The general limitations still apply.

        Notes
        • Section DC 3B: inserted, on (applying for income years beginning on or after 1 April 2011), by section 40(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).