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Business income tax
Te take whiwhinga pakihi
Paying tax: Tax rates

Companies

Companies own the assets and liabilities of the business and are responsible for any debts. Generally, a shareholders' liability for debts is limited to any amounts that remain unpaid on their shares in the company.

A company will make losses for tax purposes if its total expenses exceed its income. If a company has losses it may not have to pay tax and can usually use the loss to reduce its income in the next income year.

Find out more about tax losses of companies.

Note- Look-through companies (LTCs)  

LTCs are a special sort of company that is "looked-through" for income tax purposes. The shareholders of the LTC become liable for income tax on the LTC's profits, while also being able to offset the LTC's losses against any other income.

Each owner :

  • is responsible for declaring the income on their individual income tax return, and
  • will be liable for any tax payable on their LTC income at their marginal tax rate,and
  • is regarded for income tax purposes as holding the LTC's assets directly and carrying on the activities of the LTC personally.

Find out more about the rules that apply to an LTC or read our Look-through companies (IR879) guide under "Forms and guides".

How do I form a company?

You register (incorporate) it under the Companies Act by:

  • contacting the Companies Office, and
  • paying for a legal registration process.

What is the company tax rate?

Profits earned by a company, except for profits of a LTC, are taxed at the company tax rate of::

  • 28 cents in the dollar for income years 2012 and later.
  • 30 cents in the dollar for income years 2009 to 2011.
  • 33 cents in the dollar for income years 2008 and earlier.

Who pays income tax at the company rate?

The company tax rate (CTR) applies to all:

  • registered companies, except for those who elect to become a LTC.
  • cooperative companies
  • life insurance companies deadline
  • incorporated societies
  • portfolio investment entity (PIEs) that are not portfolio tax rate entities (See Tax rules for portfolio investment entities for a more detailed description.)
  • specific savings vehicles defined as being taxed at this rate in Schedule 1 of the Income Tax Act 2007.
  • unit trusts
  • statutory producer boards
  • group investment funds (except for certain income).

How can a company distribute its profits?

Companies can distribute money in three ways:

Method Description Tax responsibility
1 Shareholder-employees can periodically draw money from the company. Owners of an LTC can't receive shareholder-employee salaries. At the end of the year, the company calculates a salary amount on which the shareholder will have to pay income tax.
2 Shareholder-employees can be paid a regular salary (at least monthly) with PAYE taken out in the normal way. These salaries are deductible as a business expense for the company.
3

The company can pay dividends to shareholders out of the profits that remain after tax.

Any dividends paid by an LTC are ignored for income tax purposes, as the LTC is "looked-through" to establish each owner's share of LTC income.

The company may also attach tax credits to these dividends called imputation credits. See Imputation basics for more information.

Whenever a New Zealand company pays dividends to a New Zealand shareholder, the company must also deduct RWT to bring the total of RWT and imputation credits up to 33% of the gross dividend amount. See Find out more about tax on interest and dividends.

How do I calculate my tax liability?

You can use the Tax on annual income calculator in Work it out > to calculate your tax liability.

What is an income year?

The income year of a company is (generally) the twelve-month period that ends on its annual balance date. Although this is most often the same as the tax year, which runs from 1 April to 31 March of the following year, it does not have to be.

Example

If the company's annual balance date is… then its 2012 income year is…
31 March (standard) from 1 April 2011 to 31 March 2012.
30 September (non-standard) from 1 October 2011 to 30 September 2012.

Note:  You need to apply to Inland Revenue to use a non-standard balance date. See Starting a business - your balance date for more details.

 

 


Date published: 30 Mar 2011

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