Māori authority credits: How the credit system works
What is a Māori authority credit?
A Māori authority credit is similar to a company imputation credit. It is income tax paid by the Māori authority that may be passed on to a member by attaching it to a distribution, for the benefit of the member.
These credits are added to the distribution to calculate gross income to the member. The member receiving the distribution may then claim the Māori authority credits against their income tax liability.
This system helps stop the double taxation of a Māori authorities distributions by effectively taxing the distribution once - in the Māori authority's income tax return.
How the credit system works
Māori authorities were previously subject to a dividend withholding tax system that applies up to the end of the 2003-04 income tax year.
The credit system applies to all income tax paid from the 2004-05 income tax year onwards.
The following example shows how the credit system works.
| Example | ||
|---|---|---|
| Tax on Māori authority | ||
| Māori authority profit | $1,000 | |
| Tax at 17.5% | $175 | |
| After-tax profit | $825 | |
| Distribution paid to members | $825 | |
| Retained earnings | Nil | |
| Tax on shareholder | ||
| Distribution received | $825 | |
| Māori authority credit | $175 | |
| Taxable amount | $1,000 | |
| Tax at (for example) 17.5% | $175 | |
| Less Māori authority credit | $175 | |
| Tax payable by member | Nil | |
| Result for member | ||
| Cash distribution received | $825 | |
| Less tax payable | Nil | |
| Net distribution after tax | $825 | |
Date published: 30 Mar 2011
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