Section EA 4 — Income Tax Act 2007: Deferred payment of employment income

EA 4 Deferred payment of employment income When this section applies (1) This section applies when— (a) a person is allowed a deduction in an income year for an amount of expenditure on employment income; and (b) the person has not paid the amount at the end of— (i) the 63rd day after the end of the income year; or (ii) the period described in subsection (3), for employment income paid to a shareholder-employee. Unpaid amount (2) The unpaid amount is— (a) income of the person in the income year under section CH 3 (Adjustment for deferred payment of employment income); and (b) an amount for which the person is allowed a deduction in the following income year under section DB 51 (Adjustment for deferred payment of employment income). Extension of payment period for shareholder-employee (3) For employment income paid to a shareholder-employee, the 63 day period for payment in subsection (1)(b)(i) is extended until the last date by which the person could file a return of income for the income year if the time for filing were extended to its maximum under section 37(5) of the Tax Administration Act 1994. Sale of business: obligations transferred to non-associates (4) For the purposes of this section, a person (the seller ) who sells a business, or a part of a business, to another person (the buyer ) is treated as paying, at the time of the sale, an amount of employment income of an employee working in the business if— (a) the seller and the buyer are not associated persons at the time of the sale; and (b) the seller has incurred the obligation to pay the amount in the course of their business, whether or not it remains a contingent obligation at the time of sale; and (c) the employee becomes an employee of the buyer under the sale arrangements; and (d) the seller and the buyer agree in writing, under the sale arrangements, that— (i) the buyer assumes the obligation to pay an amount of employment income to the employee; and (ii) the consideration payable by the buyer for the business, or the part of the business, reflects the buyer’s assumption of the seller’s provision for the obligation. Sale of business: obligations transferred to associates (5) If subsection (4) would have applied but for the fact that the seller and the buyer are associated at the time of the sale,— (a) the amount of employment income is not treated as income of the seller in any income year following the sale, despite subsection (2)(a) and section CH 3 ; and (b) the seller is denied a deduction for the amount of employment income in any income year following the sale, despite subsection (2)(b) and section DB 51 ; and (c) the buyer may be allowed a deduction under section DC 10(3) (Sale of business: transferred employment income obligations). No sale: obligations transferred to associates (6) If section DC 11 (Transfers of employment income obligations to associates) applies,— (a) the amount of employment income is not treated as income of the transferor ( person A ) in any income year following the sale, despite subsection (2)(a) and section CH 3 ; and (b) the transferor is denied a deduction for the amount of employment income in any income year following the sale, despite subsection (2)(b) and section DB 51 ; and (c) the transferee ( person B ) may be allowed a deduction under section DC 11 . Accounting treatment of transferred obligations (7) For the purposes of this section, the buyer of a business, or a part of a business, who assumes at the time of the sale an obligation to pay an amount of employment income— (a) may account for the amount in a way that treats the relevant employee individually or treats the buyer’s employees as a group; and (b) must account for the amount in the same way in each relevant income year. Defined in this Act: amount , arrangement , associated person , business , deduction , employee , employment income , income , income year , pay , return of income , shareholder-employee , time of the sale , Compare: 2004 No 35 s EA 4