In New Zealand, most companies are set up with the primary goal of conducting business and generating income. During the establishment phase, attention is typically focused on aspects like the company’s structure, ownership of shares, and director appointments.
Often overlooked, however, is how business income will be extracted or how the business might eventually be sold. Yet, with the growing disparity between the company tax rate (28%) and personal/trust tax rates (reaching 39% by 2024/25), it’s crucial to explore avenues for extracting taxable value from a company tax-free whenever possible.
In simple terms, a company’s equity is the value derived from its assets minus liabilities. This equity comprises subscribed capital, accumulated taxable income, and/or capital gains.
Subscribed capital (ASC) represents the cash injected into a company by its shareholders. It forms a pool of funds that can be distributed to shareholders tax-free, subject to specific conditions. For instance, if a pro-rata share repurchase and cancellation occur, the amount paid might be tax-free under certain criteria, such as being at least 15% of the market value of all participating shares.
Capital gains, on the other hand, can typically be extracted tax-free only upon liquidation. To facilitate easy extraction, land is sometimes held in separate companies, allowing for straightforward winding up if the land is sold.
Another option arises when selling the business to a third party. By selling the company’s shares, assuming they are held on capital account, exiting shareholders can potentially realize a non-taxable capital gain. Future extraction of this value by the purchaser may also remain non-taxable.
As the disparity between tax rates grows, businesses are likely to seek ways to mitigate the higher tax rate. However, it’s essential to consider the complexity of tax mitigation strategies and weigh the associated risks against potential rewards. With tax planning, striking the right balance between risk and reward is paramount.
Your Outside Team
Need a bit of assistance with your business? Contact an Outside Accounting team member today and learn more about our fixed fees. You won’t regret it.
Aside from business consultation, we are business accountants Wellington who offer accounting, bookkeeping, payroll services designed to help you achieve greater financial success.
You can click here to speak to a business, accounting and bookkeeping firm. We will give you a call to know more about your needs. We will explain to you how we can improve your business.
Address: Level 2, 182 Vivian Street,
Te Aro, Wellington 6011, New Zealand
Mail: PO Box 24-457, Wellington 6142
Phone: 04 889 2975
Values can sound like fluffy territory for a business owner. Mission statements on walls. Workshop outputs that get filed away and forgotten.
I used to think the same. When the team is small, you don’t need much of a framework – everyone’s in the same room, culture is implicit, and alignment happens naturally.
If I’m being direct: most business owners are the biggest risk in their own business.
Not because they’re doing anything wrong. But because everything runs through them.
I’ve been thinking a lot lately about something that doesn’t get much airtime in business conversations: energy.
Not motivation. Not mindset. Just basic, physical energy – and how much it shapes everything you do as a leader.
I was speaking with a client recently who’d been consuming advice from three different coaches, testing half a dozen AI tools, and reading everything they could get their hands on about how to grow their business. They were busy. Genuinely busy. But nothing was getting done.
Something I see a lot with business owners right now is overwhelm – and not the kind that comes from a bad business. It comes from too many options.
I was speaking with a client recently who’d been consuming advice from three different coaches, testing half a dozen AI tools, and reading everything they could get their hands on about how to grow their business. They were busy. Genuinely busy. But nothing was getting done.
Want to recession-proof your business? Our expert business accountants in Wellington share practical strategies for resilience, smart investment, and financial clarity.
Stuck in daily tasks? A business accountant can help you escape the technician trap, implement systems & focus on growth. Learn how Outside Accounting in Wellington can help.
ALL POSTS
NEWSLETTER SUBSCRIPTION