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Individual income tax Tāke moni whiwhi mō te takitahi

Major shareholder in a close company - attributed income

If you're a major shareholder in a close company, on the last day of the company's income year, you may need to include income earned by the company as income for Working for Families Tax Credits and student loans.

If your spouse/partner is a major shareholder in a closed company, they may also need to calculate if any income earned by this company needs to be taken into account in working out your family's Working for Families Tax Credits entitlement. You may also have to include the voting interests (shares) of dependent children.

If your company has made a deposit to, or a withdrawal from, a main income equalisation account during the income year you will need to adjust the “company’s total income” used in the calculation below to account for it. To find out how to make the required adjustments go to our pages:

There are two sets of calculations for calculation of income. Please make sure you use the correct rules when calculating the amount to be treated as income for:

Who a major shareholder in a close company is

A major shareholder in a close company is anyone who:

  • owns, or has the right to acquire, at least 10% of the ordinary shares of the company, or
  • has the power to control, directly or indirectly, at least 10% of the ordinary shares of the company, or
  • owns, or has the right to acquire, at least 10% of the voting interests in the company, or
  • has the power to control, directly or indirectly, at least 10% of the voting interests in the company, or
  • has, in any other way, 10% or more of the control of the company.

 Calculating the amount to be treated as income for 2015 tax years onwards

You'll need the following information to do the calculation:

  • company's net total income for the company's income year
  • total dividends paid by the company for the company's income year
  • voting interests held in the company on the last day of the income year by you and/or your dependent children
  • total number of company shares on the last day of the income year.

Calculation for your voting interests

your voting interests
total voting interests
x (company's total income - dividends) = attributed income

For Working for Families Tax Credits, you also have to include the voting interests of dependent children in the company. The formula for this is:

your children's shares
total company shares
x (company's total income - dividends) = children's attributed income
Note

If you're a major shareholder in more than one close company, you'll need to do separate calculations for each company and combine the attributed income amounts for you and your dependent children.

You should also exclude any fixed-rate shares from the calculations.

For Working for Families Tax Credits purposes the voting interests of dependent child(ren) are divided equally between you, your spouse and/or partner and other principal caregivers if they are major shareholders in the company.

Example 1

Jasmine is receiving Working for Families Tax Credits for her two children and holds 60,000 of the 100,000 voting interests in the company. Her two children hold the other 40,000. The company made a profit of $90,000 and didn't pay any dividends.

Jasmine's attributed income calculation for her shares

60,000
100,000
x ($90,000 -$0) = $54,000
Jasmine's attributed income calculation for her dependent children's shares
40,000
100,000
x ($90,000 -$0)
 
= $36,000
Example 2

Renee receives Working for Families Tax Credits payments and has a student loan. She holds 25% of the voting interests in a private company with two other shareholders. The company made a profit of $200,000 and paid dividends of $50,000.

Renee's attributed income calculation

25%
 
x ($200,000 -$50,000)
 
= $37,500

 Calculating the amount to be treated as income for 2014 and previous tax years

You'll need the following information to do the calculation:

  • company's net total income for the company's income year
  • total dividends paid to you by the company for the company's income year
  • voting interests held in the company on the last day of the income year by you
  • total number of company shares on the last day of the income year.

Calculation for your attributed income

(your voting interests
total voting interests)
x company's total income - dividends = attributed income

Dividends are the total amount, not exceeding the company income, of dividends paid by the company to you for the income year.

Note

If you're a major shareholder in more than one close company, you'll need to do separate calculations for each company and combine the attributed income amounts.

You should also exclude any fixed-rate shares from the calculations.

Example 1

Jasmine is receiving Working for Families Tax Credits for her two children and holds 60,000 of the 100,000 voting interests in the company. The company made a profit of $90,000 and didn't pay any dividends.

Jasmine's attributed income calculation for her shares

(60,000
100,000
x ($90,000) - $0) = $54,000
(attributed income)
Example 2

Renee receives Working for Families Tax Credits payments. She holds 25% of the voting interests in a private company with two other shareholders. The company made a profit of $200,000 and paid dividends to Renee of $12,500.

Renee's attributed income calculation

(25%
 
x $200,0000)
 
- $12,000 = $37,500