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Income Tax Act 2007

Deductions - Expenditure specific to certain entities

DV 27: Employee share schemes

You could also call this:

“Rules for tax deductions in employee share schemes”

If you are part of an employee share scheme, there are some special rules about what you can and can’t claim as a deduction on your taxes.

Generally, you can’t claim a deduction for any costs or losses related to the employee share scheme. However, there are some exceptions to this rule.

You can claim deductions for costs related to loans or interest, and for setting up or managing the employee share scheme.

You’re also allowed to claim a deduction for the amount you’re given under section CE 2(3). This is about benefits you get from employee share schemes.

You can claim a deduction for costs or losses on employment income, except for income covered by section CE 1(1)(d). This section talks about money you get from your job.

If you’re the company that employs or contracts someone in an employee share scheme, you might be able to claim a deduction. This applies if the employee is described in section CE 7(a)(i) or (ii). The amount you can claim is worked out using a special formula.

The formula subtracts any previous deductions from the ‘employee amount’. The ‘employee amount’ is calculated using another formula in section CE 2(1). Previous deductions are any claims made by anyone involved in the scheme before a certain date.

If the result of this calculation is negative, it counts as income for you instead of a deduction.

These rules add to the general permission for deductions and override the employment limitation.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=LMS93751.

Topics:

Money and consumer rights > Taxes

Work and jobs > Worker rights

DV 26: Deduction for reinstatement of R&D tax losses, or

“You can claim a deduction for reinstating research and development tax losses”

DV 28: Exempt employee share schemes, or

“Rules for tax deductions in exempt employee share schemes”

Part D Deductions
Expenditure specific to certain entities

DV 27Employee share schemes

This section applies when a person is party to an employee share scheme.
Except as provided by this section, the person is denied a deduction for an amount of expenditure or loss for an income year incurred in relation to the employee share scheme.
Subsection (2) does not apply to an amount of expenditure or loss to the extent to which the amount relates to—
a loan or interest:
establishing or managing the employee share scheme.

The person is allowed a deduction for the amount of the deduction they are allowed under section CE 2(3) (Benefits under employee share schemes) for the income year.
The person is allowed a deduction for an amount of expenditure or loss incurred on employment income other than under section CE 1(1)(d) (Amounts derived in connection with employment).
If the person is the employing or contracting company for an employee share scheme beneficiary described in section CE 7(a)(i) or (ii) (Meaning of employee share scheme) (the employee), the person has an amount of expenditure or loss calculated using the formula in subsection (7).
For the purposes of subsection (6), the amount of the expenditure or loss is the positive amount calculated using the formula—
$employee amount − previous deductions.$

Where:
In the formula,—
employee amount is the amount for the employee calculated under the formula in section CE 2(1):
previous deductions is the total amount of deductions that have been allowed to a party to the employee share scheme or an associate for expenditure or loss incurred—
1. in relation to the employee amount; and
2. before the date that is 6 months after the date of Royal assent for the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018.

A negative amount calculated using the formula in subsection (7) is an amount of income of the person.
Subsection (4) supplements the general permission. Subsection (4) overrides the employment limitation.

Notes

Section DV 27: inserted, on 29 September 2018, by section 61 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).