Excessive remuneration paid by a close company to a shareholder, director or relative

The Income Tax Act 2007 has been amended retrospectively to address excessive remuneration paid by a close company to a shareholder, director or relative.

Section GB 25(3) of the Income Tax Act 2007 has been amended retrospectively to ensure that it does not apply to a director, shareholder or a relative of the director or shareholder who is employed substantially full-time and is participating in the administration of the business.

As originally enacted, section GB 25(3) of the 2007 Act permitted the Commissioner to amend the assessment of a director, shareholder or a relative of the director or shareholder, if that person was employed substantially full-time and was participating in the administration of the business. This was an unintended change in outcome when compared to section GD 5 of the 2004 Act.

Section GD 5 of the 2004 Act (which corresponds to section GB 25 of the 2007 Act) did not apply to a director, shareholder or a relative of the director or shareholder who was employed substantially full-time and participating in the administration of the business. The amendment ensures that section GB 25(3) does not apply to a director, shareholder or a relative of the director or shareholder who is employed substantially full-time and participating in the administration of the business