What is a Māori authority?
In 1939, Māori authorities were created to act as trustees in order to administer communally-owned Māori property on behalf of individual members.
Today, a Māori authority must manage or administer assets held in common ownership. These entities may be trustees of trusts or companies.
Changes to tax rulessurrounding the Māori authorities
In 1952 a Commission of Inquiry recommended that the tax rules surrounding the Māori authorities be updated to ensure fairer taxation. In August 2001 the government released the discussion document “Taxation of Māori Organisations” which contained policy options for modernising the tax rules for Māori authorities.
Legislation was passed in 2003 to introduce new rules that apply to the taxation of Māori authorities. The new legislation became effective from the 2004/05 income year and replaced the existing tax rules governing Māori authorities.
All Māori organisations wanting to take advantage of the Māori authority tax rules, including the tax rate of 17.5%, must meet the qualifying criteria and elect into the system.
Your organisation will need to weigh the advantages and disadvantages before deciding whether to elect into the Māori authority system.
Advantages of becoming a Māori authority
Some of the advantages to becoming a Māori authority are:
- A lower income tax rate of 17.5%, which matches the tax rate of the majority of authority members.
- Simplified tax accounting and compliance procedures.
- Removing the need for the majority of members to complete an income tax return to claim back the difference between their personal tax rate and the Māori authority’s tax rate.
- Credits attached to distributions that exceed a member’s tax liabilities will be refunded.
- The resident withholding tax (RWT) can be a lower rate than that applicable for other taxpayers.
- Māori authorities can “opt” out of the Māori authority system if they wish without the requirement to wind up and establish another entity.
- Disadvantages of becoming a Māori authority
Some of the disadvantages of becoming a Māori authority are:
- Māori authorities that are companies cannot group losses, amalgamate or consolidate with other companies that are not Māori authorities.
- A 33% RWT rate applies on distributions over $200 where the Māori authority does not hold a member’s IRD number.
- A Māori authority that elects out and then re-enters later is treated as having disposed of and then reacquired all of its assets at market value.