Shareholder salaries explained
In a New Zealand company, there are two main ways to pay yourself as an owner: a shareholder salary or a dividend. Understanding the difference is important for managing your tax correctly.
What is a shareholder salary?
A shareholder salary (also called shareholder-employee remuneration) is a regular payment from the company to a working shareholder in exchange for their labour. It is treated the same as an employee salary:
- Tax-deductible for the company — it reduces the company's taxable profit before the 28% rate is applied
- Subject to PAYE — income tax is deducted at source before the money reaches you
- Declared in the IR4 — shareholder salaries must be listed in the company's annual tax return
- Personal income tax applies — the salary forms part of your personal income and is taxed at your personal rate
What is a dividend?
A dividend is a distribution of the company's after-tax profit to shareholders. Unlike a salary:
- Dividends are not tax-deductible for the company
- The company has already paid 28% tax on the profit before paying the dividend
- Imputation credits are attached to dividends — these represent the company tax already paid, which you can offset against your personal tax liability
- No PAYE is deducted at the time of payment
Salary vs dividend — which is better?
|
|
Shareholder Salary | Dividend |
|---|---|---|
| Company tax deduction | Yes | No |
| PAYE deducted | Yes | No |
| Personal tax | Yes, at your rate | Yes, with imputation credit offset |
| ACC levies | Yes | Generally no |
| GST | No | No |
In practice, many owner-operators use a combination of salary and dividends to manage their tax efficiently. The right balance depends on your personal circumstances and the company's profitability.
We recommend speaking with an accountant to structure your shareholder remuneration correctly getting this wrong can lead to unexpected tax bills.
Source: ird.govt.nz — Imputation for companies | ird.govt.nz — Interest and dividends