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A Māori 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.
The Māori authority tax rate is 17.5%. Māori authorities are free to decide whether to attach a Māori authority credit to distributions they pay, but there is a maximum ratio of credit to distributions that can be allocated. If this ratio is exceeded, the Māori authority would effectively be passing on more credits to its members than tax it has paid on the profits from which those distributions were paid.
|Māori authority profit||$ 100.00|
|Tax @ 17.5%||$ 17.50|
|Tax paid profit||$ 82.50|
The Māori authority has paid $17.50 of tax on the $82.50 available for distribution. The base ratio is therefore 21.21 cents in the dollar ($17.50 ÷ $82.50).
RWT is a tax deducted from investment income, like Māori authority dividends, before the investor, or beneficiary, receives it. The amount of RWT to pay is:
Māori authority doesn't have the member's IRD number and the distribution exceeds $200, in which case the tax rate is 33%, reduced by any Māori authority credits attached, up to a maximum rate of 17.5%.
This amount is reduced by any Māori authority credits attached, up to a maximum rate of 17.5%. This means that people who receive Māori authority dividends don't have to pay all the tax in a lump sum at the end of the year. People who don't declare their dividends still have tax deducted from it. In these circumstances, we still follow up on undeclared income, and take action against people who don't declare it.
Taxable Māori authority distributions are also subject to RWT if the:
Mere is a member in a Māori authority and has provided an IRD number. The Māori authority makes a distribution to Mere of $90, which is made up of $80 in cash and $10 in Māori authority credits. The Māori authority must withhold a further $5.75 in tax so that Mere only receives $74.25 in cash.
|Net distribution||$ 74.25|
|Māori authority credits||$ 10.00|
|RWT||$ 5.75||$ 15.75|
|Gross distribution||$ 90.00|
The total tax paid by way of credits and RWT is $15.75, which is 17.5% of the gross distribution of $90.
Where a Māori authority is a company, credits can only be passed on to members of a Māori authority if at least 66% of those members remain with the authority from the time the credits arise, to the date they're distributed to the members. If the membership of a Māori authority changes by more than 34%, the Māori authority has lost membership continuity. This rule is set in place to prevent members who didn't hold their shares at the time the Māori authority credit arose, being able to use the Māori authority credits they receive as part of any future distribution.
In this situation, a Māori authority must enter a debit entry into the Māori authority credit account (MACA).
A distribution is a transfer of value (such as a payment of interest, principal or dividend) from the Māori authority to its members.
The first taxable Māori authority distribution made by a Māori authority in any tax year is called the benchmark distribution. This sets the ratio between the credits and dividends for the rest of the tax year. If there are changes to the benchmark ratio of subsequent dividends, the Ratio change declaration (IR407) form must be completed. See 'Ratio change declaration' below.
This credit ratio is calculated using the following formula:
|Māori authority credit|
Māori authority credit is the amount of the Māori authority credit attached to the distribution and, if a Māori authority credit isn't attached, that amount is zero.
Net distribution is the amount of the distribution by the Māori authority, not including any Māori authority credit.
The ratio of Māori authority credits attached to the benchmark distribution will generally determine the ratio that all other distributions in that MACA year must take. If a Māori authority tries to distribute Māori authority credits at a higher ratio to the one set by its benchmark distribution, it will have to pay an "allocation debit" penalty, unless it declares the ratio change.
To declare the change, complete a Ratio change declaration (IR407) form.
If a MACA goes into debit throughout the year it must pay any debit balance that exists at 31 March on or before the following 20 June.