In New Zealand, a shareholder employee can receive an amount classified as a shareholder salary. Unlike standard PAYE income, this type of salary is not subject to PAYE deductions at the time of payment. Instead, it is treated as income for the shareholder employee and must be accounted for in their annual tax return.
Eligibility for a Shareholder Salary
To qualify for a shareholder salary, the shareholder employee must meet specific conditions:
They should not receive regular salaries or wages of a fixed amount at consistent pay periods (e.g., weekly or monthly payments).
They must earn less than 66% of their annual gross income from wages or salaries.
Shareholders of look-through companies (LTCs) are not eligible for a shareholder salary.
Tax Treatment and Deductions
The amount paid as a shareholder salary is deductible as an employment-related expense for the company. One of the benefits of this structure is the flexibility it provides in tax planning, as the payment period can be extended until the due date for filing the shareholder employee’s tax return.
Links
- Income Tax Act 2007 - RD 3B: Shareholder Salary Rules
- Income Tax Act 2007 - EA 4: Deferred Payment of Employment Income