Section DC 2 — Income Tax Act 2007: Pension payments to former employees

DC 2 Pension payments to former employees When subsection (2) applies (1) Subsection (2) applies when— (a) a person, other than a close company, carries on a business; and (b) a former employee has retired from their employment in the business or their employment has ended through redundancy or similar circumstances; and (c) they are paid a pension in consideration of their past services in the business; and (d) they or their spouse, civil union partner, or de facto partner has a right to receive the pension under a deed for a fixed period or for life or, in the case of the spouse, civil union partner, or de facto partner, until the spouse, civil union partner, or de facto partner enters a new marriage, civil union, or de facto relationship. Deduction: not close company (2) The person is allowed a deduction for a reasonable amount paid as the pension to the former employee or their surviving spouse, civil union partner, or de facto partner. When subsection (4) applies (3) Subsection (4) applies when— (a) a close company carries on a business; and (b) a former employee of the company is or has been a shareholder in it or has a relative who is or has been a shareholder in it; and (c) the former employee’s employment in the company was genuine; and (d) they have retired from the employment or their employment has ended through redundancy or similar circumstances; and (e) they are paid a pension in consideration of their past services in the business; and (f) they or their spouse, civil union partner, or de facto partner has a right to receive the pension under a deed for a fixed period or for life or, in the case of the spouse, civil union partner, or de facto partner, until the spouse, civil union partner, or de facto partner enters a new marriage, civil union, or de facto relationship. Deduction: close company (4) The close company is allowed a deduction for the amount paid as the pension to the former employee or their surviving spouse, civil union partner, or de facto partner. Amount of deduction under subsection (4) (5) The amount of the deduction allowed under subsection (4) is the amount that the company would have paid if the former employee or their relative were not, or had not been, a shareholder in the company. Timing of deductions (6) A deduction under this section is allocated to the income year in which the amount is paid. Relationship with section FB 11 (7) Section FB 11 (Pension payments to former employees) expands on this section. Link with subpart DA (8) This section supplements the general permission and overrides the capital limitation. The other general limitations still apply. Defined in this Act: amount , business , capital limitation , close company , deduction , employee , general limitation , general permission , income year , pay , relative , shareholder , supplement , Compare: 2004 No 35 s DC 2