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Income Tax Act 2007

Avoidance and non-market transactions - Avoidance: specific

GB 25B: Excessive effective look-through interests

You could also call this:

“Limiting income for young relatives who own part of a look-through company”

You need to know about a rule that applies when someone owns part of a special kind of company called a look-through company (LTC). This rule is for situations where two or more people who own parts of the LTC are related to each other, and one of them is under 20 years old.

If the tax office (called the Commissioner) thinks the young person is getting too much money from the LTC, they can change how much of the company’s income goes to each owner. The Commissioner will decide what they think is fair, without counting any money given to the young relative.

When making this decision, the Commissioner can look at things like:

  • What kind of work the young relative does for the company and how much they do
  • How much each owner has put into the company, like money or work
  • Anything else that seems important

This rule helps make sure that young people aren’t given ownership of companies just to avoid paying taxes.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM3683713.

Topics:
Money and consumer rights > Taxes
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Part G Avoidance and non-market transactions
Avoidance: specific

GB 25BExcessive effective look-through interests

  1. This section applies to the extent to which, for an income year,—

  2. a person (an owner) has an effective look-through interest for a look-through company (the LTC); and
    1. for the LTC, 2 or more owners are relatives, 1 of whom is under 20 years old (the relevant relative); and
      1. the Commissioner considers that the income arising from the application of section HB 1 (Look-through companies are transparent) for the relevant relative is excessive.

        1. Despite section HB 1, the effective look-through interests for the person are the interests that the Commissioner considers reasonable for the income year or part of the income year, as applicable, without taking into account an amount provided to the relevant relative.

        2. The Commissioner may take into account each of the following matters when applying this section:

        3. the nature and extent of services rendered by the relevant relative:
          1. the value of the contributions made by the respective owners, by way of services, capital, or otherwise:
            1. any other relevant matters.

              Notes
              • Section GB 25B: inserted, on (applying for income years beginning on or after 1 April 2011), by section 68(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).