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Accident Compensation Act 2001

Preliminary provisions

15: Earnings as a shareholder-employee

You could also call this:

"How the law calculates money you make as an owner-worker in a company"

When you're a shareholder-employee of a company, your earnings are calculated in a specific way for each tax year. Your earnings can be determined in two ways:

  1. The first way is to add up all the money you get from the company as an employee, plus any other income that's treated as if it didn't come from your regular pay.

  2. If the first way doesn't seem fair, the Accident Compensation Corporation (ACC) can decide to use a different method. In this case, they will:

    • Figure out how much you should reasonably be paid for your work as an employee.
    • Figure out how much you should reasonably be paid for your work as a director.
    • Add these two amounts together.

The ACC will decide which of these two ways to use to calculate your earnings.

If the ACC uses the second method, the amount they decide is reasonable for your work as an employee is considered your employee earnings. The amount they decide is reasonable for your work as a director is considered your director's fees.

Any extra money the company gives you that's more than what the ACC decided is reasonable is considered a dividend. This dividend isn't counted as part of your earnings.

It's important to know that if you get benefits from an employee share scheme, these are not included in your earnings as a shareholder-employee.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM100645.

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Part 1Preliminary provisions

15Earnings as a shareholder-employee

  1. Earnings as a shareholder-employee, in relation to a person who is a shareholder-employee and any tax year, means—

  2. the amount described in subsection (2) (the subsection (2) amount); or
    1. the amount described in subsection (3) (the subsection (3) amount), if the Corporation decides that the subsection (2) amount is not a reasonable representation of the person's earnings as a shareholder-employee in the tax year.

      1. The subsection (2) amount is—

      2. all PAYE income payments of the person for the tax year derived from a company of which the person is a shareholder-employee; and
        1. all income of the person that is deemed to be income derived otherwise than from PAYE income payments under section RD 3B or RD 3C of the Income Tax Act 2007.

          1. The subsection (3) amount is an amount determined by the Corporation in the following way:

          2. first, determine each of the following amounts:
            1. an amount that represents reasonable remuneration for the services that the person provides to the company as an employee of the company in the tax year; and
              1. an amount that represents reasonable remuneration for the services that the person provides as a director of the company in the tax year; and
              2. second, add the amounts described in paragraph (a)(i) and (ii), and the result is the subsection (3) amount.

                1. The earnings as an employee of the person as an employee of the company are the amount described in subsection (3)(a)(i).

                2. The director's fees of the person as a director of the company are the amount described in subsection (3)(a)(ii).

                3. The dividend of the person as a shareholder of the company is determined by the Corporation in the following way:

                4. first, determine the total amount the company pays or provides to the person in any capacity in the tax year; and
                  1. second, deduct the subsection (3) amount from that total amount, and the result is the dividend of the person as a shareholder of the company and is not earnings of the person.

                    1. For the purposes of this section, earnings as a shareholder-employee do not include a benefit arising from an employee share scheme under section CE 2 of the Income Tax Act 2007.

                    Notes
                    • Section 15(1): amended, on (effective for 2005–06 tax year and later tax years, except when the context requires otherwise), by section YA 2 of the Income Tax Act 2004 (2004 No 35).
                    • Section 15(1)(b): amended, on (effective for 2005–06 tax year and later tax years, except when the context requires otherwise), by section YA 2 of the Income Tax Act 2004 (2004 No 35).
                    • Section 15(2)(a): amended, on (effective for 2008–09 income year and later income years, except when the context requires otherwise), by section ZA 2(1) of the Income Tax Act 2007 (2007 No 97).
                    • Section 15(2)(a): amended, on (effective for 2005–06 tax year and later tax years, except when the context requires otherwise), by section YA 2 of the Income Tax Act 2004 (2004 No 35).
                    • Section 15(2)(b): amended (with effect on 30 March 2017), on , by section 409 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                    • Section 15(2)(b): amended, on (effective for 2008–09 income year and later income years, except when the context requires otherwise), by section ZA 2(1) of the Income Tax Act 2007 (2007 No 97).
                    • Section 15(3)(a)(i): amended, on (effective for 2005–06 tax year and later tax years, except when the context requires otherwise), by section YA 2 of the Income Tax Act 2004 (2004 No 35).
                    • Section 15(3)(a)(ii): amended, on (effective for 2005–06 tax year and later tax years, except when the context requires otherwise), by section YA 2 of the Income Tax Act 2004 (2004 No 35).
                    • Section 15(6)(a): amended, on (effective for 2005–06 tax year and later tax years, except when the context requires otherwise), by section YA 2 of the Income Tax Act 2004 (2004 No 35).
                    • Section 15(7): inserted, on (applying for the 2017–18 and later income years, or as described in s 229(2)(b) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016), by section 229 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
                    • Section 15(7): amended (with effect on 1 April 2024), on , by section 267(1) (and see section 267(2) for application) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).