Incorporating a New Zealand company is typically focused on business operations and income generation. However, it’s crucial to consider strategies for tax-free cash extraction, especially with the increasing gap between company tax rates and personal/trust tax rates. Here’s how you can optimise cash extraction from your company:
ASC represents the cash invested by shareholders into the company.
Funds from ASC can be distributed tax-free to shareholders under specific conditions.
For instance, a pro-rata share repurchase and cancellation may qualify for tax-free treatment if certain criteria, such as percentage of market value and absence of dividend substitution, are met.
Capital gains can be extracted tax-free upon company liquidation.
Assets like land are sometimes held in separate companies to facilitate easy extraction through winding up upon sale.
When selling the business, consider selling company shares to another entity.
Share sales held on capital account may result in non-taxable capital gains for exiting shareholders.
Future extraction of value from the purchasing company may not incur tax liabilities.
As the disparity between company and personal/trust tax rates widens, businesses may explore these strategies to mitigate higher tax burdens. However, it’s essential to assess risks versus rewards, as tax mitigation strategies may attract scrutiny from tax authorities like Inland Revenue.
Navigating the complexities of tax-free cash extraction requires careful planning and consideration. Consult with tax professionals to develop tailored strategies aligned with your business goals while ensuring compliance with tax regulations.
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