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.
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.
The maximum tax rate a Māori authority is required to pay is 17.5%.
The maximum Māori authority credit ratio is 17.5:82.5 from 1 April 2011 (previously 19.5:80.5 up to 31 March 2011). This means up to $17.50 of Māori authority credits can be attached to every $82.50 of dividends or, in other terms, the gross distribution can include imputation credits up to 21.21% of the dividend's cash value amount.
If this ratio were exceeded, the Māori authority would effectively be passing on more credits to its members than the amount of tax the Māori authority has paid on the profits from which those distributions were paid.
|Calculating tax and the amount available for distribution|
|Māori authority profit||$100.00|
|Tax at 17.5%||$ 17.50|
|Subtract the amount of tax from the Māori authority profit.|
|Net profit (available for distribution)||$ 82.50|
|Calculating the ratio|
|Credit attached to distribution||$ 17.50|
|Amount of distribution||$ 82.50|
|Divide the credit ($17.50) by the distribution ($82.50).|
|The Māori authority has paid $17.50 of tax on the $82.50 available for distribution. Therefore, the base ratio is 21.21 cents in the dollar.|
Applying the change immediately to all distributions risks a disadvantage to members if the Māori authority still has credits in its Māori authority credit account (MACA).
During the transitional period (1 April 2011 to 31 March 2013) a Māori authority can choose to continue attaching credits that relate to 19.5% tax at up to the previous maximum ratio of 19.5:80.5.
Our guide A guide to the Māori authority tax rules (IR487) has more information.
The base ratio of Māori authority credits attached to the benchmark (first) distribution will generally determine the ratio that all other distributions in that Māori authority credit account (MACA) year must take. If you attempt to distribute Māori 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.
You may change the base ratio by completing a Ratio change declaration (IR407) form.
A rule regarding shareholding has been set in place to prevent members who did not hold their shares when the Māori authority credit arose from being able to receive those same credits. They will still qualify for Māori authority credits that arise when they are shareholders.
If a Māori 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 Māori 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.
Taxable Māori authority distributions are also subject to resident withholding tax (RWT) if the:
|Mere is a shareholder in a Māori authority and has a marginal tax rate of 33%. 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.|
|Tax at 17.5%||$15.75|
|Subtract the amount of tax from the gross distribution.|
|Calculating RWT on the distribution|
|Total tax that must be accounted for||$15.75|
|Māori authority credit allocated to the distribution||$10.00|
|Subtract the Māori authority credit from the total tax. The difference is the amount that will be accounted for as RWT.|
|The total tax paid by way of credits and RWT is $15.75, which is 17.5% of the gross distribution of $90.|