Taxation of Companies in New Zealand

Tax and Dividend Imputation
With the introduction of dividend imputation in 1989, a company pays tax at 30% in the dollar on any profit it earns.  If this tax paid profit is later distributed to shareholders as dividends, the individual NZ-shareholders receive a credit in their tax returns for the tax the company has already paid.

Tax and Employment
A Company provides significant tax benefits.
From 1/4/2009 individuals pay income tax on taxable income

up to $14,000	at a rate of	12.5%
between $14,001 and $48,000	at a rate of	21%
between $48,001 and $70,000	at a rate of	33%
over $70,000	at a rate of	38%

Family members as employees and/or shareholder make it possible to pay less tax at the higher rates by income splitting.

Payments to spouse or family of a sole trader or of a partner in a partnership require an approval from the Inland Revenue Department to allow a claim for wages.  Even restrictions are placed on the hourly rate that can be paid.  With a Company there is no such restriction, what is required is for the amount of remuneration paid to be in keeping for the work undertaken.

Distribution of Company's Tax Losses
It is possible to register the Company with the Inland Revenue Department with "Loss Attributing Qualifying Company" (L.A.Q.C.) status.  If the Company experiencing a tax loss, this loss can be distributed to the NZ-shareholders and can be used to reduce their individual personal tax liabilities.  The losses would otherwise be held within the company and can be offset from future company profits.

So it is possible by using a L.A.Q.C. that budgeted tax losses are distributed year by year to the shareholders from the beginning of the Business, as it is done by Forestry companies since a couple of years.  Without L.A.Q.C. status, these distributions would not be possible.

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