The Issues Log

Section / Provision Income Tax Act 2007

MB 4

Section / Provision Income Tax Act 2004

KD 1(g)

Date Received

An adjustment is required to be made to a taxpayers family scheme income for Working for Families Tax Credits if they are a major shareholder in a close company.  Under the 2004 Act this adjustment is calculated as the major shareholders voting interest in the company multiplied by the company\'s net income.  An amount equal to the dividends received by the taxpayer from the company is deducted.  However, under the 2007 Act there is no provision in the calculation to deduct the dividends received by the taxpayer from the company.

Give examples: A taxpayer holds 20% of the shares in a close company.  The company\'s net income for the year is $300,000.  The taxpayer received a dividend of $50,000 from the company in the same year.

Under the 2004 Act the taxpayer would be required to make an adjustment of $10,000 ((20% * 300,000)-50,000) to their net specified income for WFTC purposes.

Under the 2007 Act the taxpayer would be required to make an adjustment of $60,000 (300,000 * 20%) to their family scheme income for WFTC purposes.

The Income Tax Act 2007 be amended retrospectively.