Article:

Updates for Shareholder Salaries and RWT

14 June 2016

It’s that time again, Inland Revenue has released a 150 page tax Bill and we’ve picked out the best changes that might benefit you. While there are some tax specific changes being suggested in this bill (expected to be implemented around 1 April 2017), there are also some nice benefits that will affect the backbone of the New Zealand economy, SMEs and tightly held companies (broadly speaking a company where 5 or fewer persons hold 50% of the voting rights).

Closely Held Companies

Shareholder-employees currently have no option to split their tax obligations between PAYE and provisional tax, it’s one or the other. The proposal in this bill allows some flexibility by giving shareholder-employees the option to return PAYE on their base salary amount while the variable amount relating to business performance (paid out pre-tax) will be subject to provisional tax instead. The main purpose of this is to reduce compliance costs and take more guess work out of provisional tax calculations.

Another nice change relates to the RWT compliance cost. Currently, RWT exemption certificates or dividends paid between wholly owned companies will stop the requirement to account for RWT on dividends. The proposal is to widen the scope and allow the payer of dividend to opt-out of the requirement to withhold RWT for dividends paid to corporate shareholders as well. 

Other points of interest that might be of interest include:

Look Through Company Changes

  • Modifying the loss limitation rule to only apply in very limited circumstances.
  • Amending the “entry tax” formula. If you are considering applying to become a LTC, this change may affect you.

NRWT/AIL Changes

  • A tightening of New Zealand withholding tax for cross-border intercompany borrowings.

For more information about these proposed changes, head to https://goo.gl/1d0GsB