Shareholder employees can now be on a PAYE salary and then top up at the end of the year with a lump sum on which they can pay provisional tax.
Previously, in New Zealand shareholder employees were only allowed to be either a PAYE salary earner or a shareholder’s salary earner. They couldn’t be both.
This often put them under a huge burden with significant provisional tax bills.
They now have an option in New Zealand to have a base amount subject to PAYE deductions and determine at the end of the year and additional amount they would like to allocate to the shareholder to make the most of the marginal tax rates being less than company rates up to $70,000.
That may impact on Australians doing business in New Zealand when it comes to reducing the incidence of double tax.
Of course, if we set you up to do business in New Zealand we look to protect you from the double taxation challenge altogether by freeing you from paying any income tax in New Zealand.
However we are aware of some Australians carrying out business through New Zealand who are subject to income tax in New Zealand. That tax is typically claimed as a foreign tax credit on their Australian income tax returns.
As franking (imputation) credits are not carried across the Tasman, the owners of the business then have to pay full Australian tax on the profits that are allocated to them.
I’ve written more on this topic – click here to read more.
Therefore, if the owner of the business pays New Zealand PAYE on a certain amount of the profit, they are paying the tax (rather than the company) which means that that income and the PAYE paid on it, can be claimed as overseas tax paid on their individual tax returns.
As New Zealand’s marginal tax rates are less than Australia’s, that will reduce the amounts (although usually not eliminate) the incidence of being double taxed. There is a catch however.
If a shareholder underpays any instalment of provisional tax based on the standard uplift method, Use of Money Interest will be charged from the first provisional tax payment date.
Therefore, as in most cases, it’s particularly important to get advice first.
The information in this article is indicative of NZ tax rules and changes and not intended to be complete for all intents or purposes and does not constitute advice. It is recommended that you obtain professional advice, suited to your particular circumstances, from us before acting on anything you read.