Ammending both employer and employee return after tax demand received.

Hi any knowledgable advice appreciated.


I have a start up limited company for the past tax year. I collected Salary mainly to protect my own financial standing, but put about three times my wages into the company in ongoing shareholder loans (oddly including to pay salaries).


I reported the salaries as such both personally and via the company accountant. However it dawns on me now that I ought to have taken that "salary" back as loan repayment as I am not able to claim investment expense as deduction.


Can anyone tell me if it is possible to correct and resubmit both employer and employee returns and get a new assessment from the IRD? I just received my demand note today and so have a month to object.

This is a difficulty that many small businesses can face and deserves some clarification.


On the one hand your company is a start-up and you have to pay out salaries but on the other you are contributing as an investor to the company in order to provide working capital. This is further complicated if the new company has to show income activity and actually pay out the salary to an employee because an employee is dependent on the company for his work visa. If this is the case, you must satisfy your agreements with the Immigration Department that you are actually paying an employee a certain amount of money per month and therefore that employee adds salary as an expense to your business and by definition employee is then able to support him or herself.


As such, each small corporate situation is different from another and has to be carefully managed to determine how payments of salary and repayment of advances should be managed.


Certainly it is possible to repay advances and not show the said receipt by the shareholder as salary since it is simply a return of capital loan to the company. However, one must be cautious as to whether such decision is appropriate given the circumstances as above.


It is possible to file an amended employer’s return and to file an amendment to the employee’s tax return so long as you support your amendments with a valid explanation to the IRD and not simply rely on a change of heart.



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