Maori authority credits: Allocating credits
Maori authority credits and resident withholding tax rules
A Maori authority may choose whether to attach credits to the distributions it pays to its members. However, if it chooses to do so it must follow certain rules.
Ratio
Maori authorities are free to decide whether to attach a Maori authority credit to distributions they pay, but there is a maximum ratio of credit to distributions that can be allocated.
Currently, the maximum tax rate a Maori authority is required to pay is 19.5%. If this ratio were exceeded, the Maori authority would effectively be passing on more credits to its members than the amount of tax the Maori authority has paid on the profits from which those distributions were paid.
| Example | ||
|---|---|---|
| Calculating tax and the amount available for distribution | ||
| Maori authority profit | $100.00 | |
| Tax at 19.5% | $ 19.50 | |
| Subtract the amount of tax from the Maori authority profit. | ||
| Net profit (available for distribution) | $ 80.50 | |
| Calculating the ratio | ||
| Credit attached to distribution | $ 19.50 | |
| Amount of distribution | $ 80.50 | |
| Divide the credit ($19.50) by the distribution ($80.50). | ||
| Base ratio | 24.22% | |
| The Maori authority has paid $19.50 of tax on the $80.50 available for distribution. Therefore, the base ratio is 24.22 cents in the dollar. | ||
Credit ratio change
The base ratio of Maori authority credits attached to the benchmark (first) distribution will generally determine the ratio that all other distributions in that Maori authority credit account (MACA) year must take. If you attempt to distribute Maori authority credits at a higher ratio than the one set by the benchmark distribution, an allocation debit will arise in the MACA, unless a ratio change declaration is made.
Ratio change declaration
You may change the base ratio by completing a Ratio change declaration (IR407) form.
Change of shareholding
A rule regarding shareholding has been set in place to prevent members who did not hold their shares when the Maori authority credit arose from being able to receive those same credits. They will still qualify for Maori authority credits that arise when they are shareholders.
If a Maori authority is a company, credits can only be passed on to members if at least 66% of those members remain with the authority from the time the credits arise to the date they are distributed to the members.
If the membership of a Maori authority changes by more than 34%, it has lost membership continuity. In this situation, you must enter a debit entry into the MACA to eliminate any unused credit balance affected by the loss of continuity.
Resident withholding tax (RWT)
Taxable Maori authority distributions are also subject to RWT if the:
- Maori authority decides not to attach any credits to the distribution
- credits attached are less than 19.5% of the gross distribution
- Maori authority does not hold the member's IRD number and the distributions exceeds $200, in which case the withholding tax rate is 39%, reduced by a Maori authority credits attached, up to a maximum rate of 19.5%.
For more information on RWT, please see "Payers of resident withholding tax (RWT)".
| Example | ||
|---|---|---|
| Mere is a shareholder in a Maori authority and has a marginal tax rate of 33%. The Maori authority makes a distribution to Mere of $90, which is made up of $80 in cash and $10 in Maori authority credits. The Maori authority must withhold a further $7.55 in tax so that Mere only receives $72.45 in cash. | ||
| Gross distribution | $90.00 | |
| Tax at 19.5% | $17.55 | |
| Subtract the amount of tax from the gross distribution. | ||
| Net distribution | $72.45 | |
| Calculating RWT on the distribution | ||
| Total tax that must be accounted for | $17.55 | |
| Maori authority credit allocated to the distribution | $10.00 | |
| Subtract the Maori authority credit from the total tax. The difference is the amount that will be accounted for as RWT. | ||
| RWT | $ 7.55 | |
| The total tax paid by way of credits and RWT is $17.55, which is 19.5% of the gross distribution of $90. | ||
Date published: 27 Apr 2006
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