Section GB 23 — Income Tax Act 2007: Excessive remuneration to relatives

GB 23 Excessive remuneration to relatives When this section applies: first case (1) This section applies when— (a) a person carries on a business or undertaking; and (b) the person employs or engages a relative or, in a case in which the person is a company but not a close company, a relative of a director or shareholder of the company, to perform services for the business or undertaking; and (c) the Commissioner considers that the income payable to the relative for the services is excessive; and (d) the exemption in section GB 24 does not apply. When this section applies: second case (2) This section also applies when— (a) a person carries on a business in partnership or has an effective look-through interest for a look-through company; and (b) the partnership or look-through company employs or engages a relative of the person or, in a case in which the person is a company, a relative of a director or shareholder in the company, to perform services for the business; and (c) the Commissioner considers that the income payable to the relative for the services is excessive; and (d) the exemption in section GB 24 does not apply. When this section applies: third case (3) This section also applies when— (a) a person carries on a business in partnership; and (b) another partner in the partnership is— (i) a relative of the person; or (ii) if the person is a company, a relative of a director or shareholder in the company; or (iii) a company in which a relative of the person is a director or shareholder; and (c) the Commissioner considers that the other partner’s share of partnership profit or losses is excessive; and (d) the exemption in section GB 24 does not apply. Allocation of income or losses (4) For the purposes of this Act, the Commissioner may allocate the income or losses of the business or undertaking among the parties to the contract or partnership as the Commissioner considers reasonable, without taking into account an amount provided to the relative or other partner. Treatment of amount allocated (5) An amount the Commissioner allocates to 1 person is treated as not belonging to another person. Matters for Commissioner’s consideration (6) The Commissioner may take into account each of the following matters when applying this section: (a) the nature and extent of the services rendered by the relative: (b) the value of the contributions made by the respective partners, by way of services, capital, or otherwise: (c) any other relevant matters. Treatment of amount allocated back to company (7) If an amount provided by a company to a relative of a director or shareholder for services is allocated to the company under subsection (4), it is treated as a dividend paid by the company and derived by the relative. Defined in this Act: close company , company , director , dividend , effective look-through interest , income , look-through company , relative , shareholder , Compare: 2004 No 35 s GD 3(1), (2) Section GB 23(2)(a): amended, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 67(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130). Section GB 23(2)(b): amended, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 67(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130). Section GB 23 list of defined terms effective look-through interest : inserted, on 1 April 2011, by section 67(3) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130). Section GB 23 list of defined terms look-through company : inserted, on 1 April 2011, by section 67(3) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).