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.
|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 :
Find out more about the rules that apply to an LTC or read our Look-through companies (IR879) guide.
You register (incorporate) it under the Companies Act by:
Profits earned by a company, except for profits of a LTC, are taxed at the company tax rate of::
The company tax rate (CTR) applies to all:
Companies can distribute money in three ways:
|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.|
The company can pay dividends to shareholders out of the profits that remain after tax.
|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.
You can use the Tax on annual income calculator in Work it out > to calculate your tax liability.
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.
|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.