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Taxation

Source: New Zealand Official Yearbook 2000. Please note, this information may now be out of date.

The tax year is from 1 April to 31 March. The Department of Inland Revenue administers three principal acts: the Income Tax Act 1994, the Tax Administration Act 1994 and the Goods and Services Tax Act 1985.

Direct taxation, 1997-2000

Year ended June
1997
1998
1999
2000
Income tax
$(million)
Individuals
15,324
15,669
14,941
15,776
Companies
3,233
3,721
3,694
4,158
Withholding taxes
1,932
1,807
1,652
1,563
Total income tax
20,489
21,260
20,287
21,497
Other direct taxation
2
..
2
2
Total direct taxation
20,489
21,260
20,289
21,499

Source: Financial Statements of the Government of New Zealand 1999; Inland Revenue.
.. = Figures not available

Inland Revenue

Total income tax

Income tax is levied under the Income Tax Act 1994 and is charged on most forms of income including business profits, employment income, royalties, interest, dividends and pensions. Capital gains are not generally taxed.

Income Tax Act 1994

Personal income tax

The rates of income tax for the 2000/01 and subsequent tax years are:

  • Income up to and including $38,000 - 19.5c for every dollar
  • Income between $38,001 and $60,000 - 33c for every dollar.
  • Income over $60,000 - 39c for every dollar.

The rates used for assessment are always based on annual income (normally 1 April to 31 March).

'Pay as you earn' (PAYE) system

'Pay as you earn' or PAYE is a system of collecting income tax from people who earn salaries, wages or other such forms of remuneration. It is deducted at the time of payment. In 1999 this system of collecting taxes underwent its first major change since its introduction in 1958.

The changes to the system have simplified the tax system by removing the requirement for wage and salary earners to file an IR5 income tax return. In certain circumstances wage and salary earners will receive a statement showing whether they have tax to pay or a refund.

The PAYE system has been amended to require employers to provide Inland Revenue with a monthly schedule detailing each employee's salary and wage income, PAYE deductions and other information such as student loan repayments.


Taxation per Capita, 1975-99

Taxes relating to property and transactions

There is no capital gains tax in New Zealand but certain 'gains' are deemed to be income. These are profits on the sale of patent rights, and profits on the sale of property (land and buildings). Generally, profits from ordinary sales of a person's private residence, business, or farm property are exempt from tax. Profits on sale of other land and buildings may be subject to income tax (in terms of section CD 1 of the Income Tax Act 1994).

Business, farming and other self-employed incomes

With these incomes, tax is not deducted at time of receipt but the taxpayer pays 'provisional tax'. A provisional taxpayer is any taxpayer who is liable for paying residual income tax of $2,500 or more. 'Residual income tax' is basically the amount of tax assessed, reduced by any tax deductions made from source deduction payments (eg PAYE and RWT on interest and dividends), tax paid overseas, tax paid by trustees etc.

Provisional tax is payable in three instalments. For taxpayers whose balance date is the standard balance date of 31 March, payments are made in July, November and March each year.

Deductions for expenses

For self-employed people and businesses, expenses which are incurred in producing income or carrying on a business may be claimed as a deduction from income. Expenses of a private, domestic, or capital nature are not deductible.

Exempt income

Income is exempt from tax in New Zealand only if provision is made in the Income Tax Act.

Some of the more common items exempt from tax are: maintenance or alimony payments, some war pensions and service disability pensions, income derived by charitable and certain non-profit organisations, and also lottery and raffle prizes.

Capital gains

Capital gains are generally not regarded as income. However, some gains that some taxpayers would regard as being of a capital nature are explicitly taxed, eg land purchased on capital account by a land developer that is sold within 10 years of acquisition.

Rebates

New Zealand has a minimal number of rebates available to personal taxpayers. Those currently available are:

  • The lower income rebate for New Zealand resident taxpayers in receipt of non-investment income.
  • A transitional tax allowance for certain full-time employees.
  • A child rebate for taxpayers who are under 18 years of age and are attending school or a tertiary educational establishment.
  • A housekeeper/childcare rebate for working parents who pay for childcare, or for disabled people who pay for help with childcare or housekeeping (maximum rebate is $310).
  • A rebate for charitable donations which is 33.3 percent of all qualifying charitable donations (minimum qualifying charitable donation is $5 and the maximum rebate is $500).

Residential qualifications to pay income tax

New Zealand residents

New Zealand residents are liable for New Zealand tax on all income including income from overseas. Credit is allowed for any tax paid overseas, but this is limited to the New Zealand tax payable on that income.

Non-residents

Non-residents are taxed in New Zealand only on income with a New Zealand source. If the income is interest, dividends or royalties, the person is liable for non-resident withholding tax (NRWT), unless the approved issuer levy is paid in respect of interest income. NRWT is deducted by the bank or other paying institution.

Pensions

Pensions paid to New Zealand residents by countries with which New Zealand has a double tax agreement are generally exempt from tax in the country of origin and subject to tax in New Zealand.

Double taxation agreements

Agreements to avoid double taxation have been entered into between New Zealand and Australia, Belgium, Canada, China, Denmark, Fiji, Finland, France, Germany, India, Indonesia, Ireland, Italy, Japan, South Korea, Malaysia, Netherlands, Norway, Philippines, Singapore, Sweden, Switzerland, Taiwan, Thailand, the United Kingdom, and the United States.

Family assistance

Financial assistance is provided for low to middle-income families with dependent children. The entitlement is based on the combined family income and the number and ages of the children. Family assistance is made up of Family Support, which is the basic payment, and Family Plus, which consists of extra payments to working families who qualify for them. It is paid either by the Department of Work and Income with a benefit if the recipient is a beneficiary, or fortnightly by Inland Revenue to the main childcarer in a non-beneficiary family.

Family Support

Family Support is assistance for families who have dependent children aged 18 years or younger. The Department of Work and Income is responsible for the payment of Family Support to beneficiaries with children. Inland Revenue is responsible for payment of Family Support to other families. Inland Revenue calculates the amount of assistance based on the family's estimated income for the year and the number and the ages of the dependent children.

Family Plus

Family Plus is made up of three components: the child tax credit, the family tax credit and the parental tax credit. The child tax credit and parental tax are payments that can be received when a family's income does not include income-tested benefits from the Department of Work and Income, NZ superannuation, veteran's pension, accident insurance payments from ACC or private insurers for more than three months, or a student allowance.

The child tax credit is a payment of up to $15 per week for each child under the age of 18. The parental tax credit applies to children born on or after 1 October 1999. It provides extra financial support to a maximum of $150 per child a week for the first eight weeks after a child is born. The family tax credit tops up a family's total income (after tax) to a guaranteed level of $290 a week ($18,368 a year before tax). At least one parent must work for salary or wages. The combined weekly hours of work in a two-parent family must be at least 30 hours. In a single-parent family, the weekly hours of work must be at least 20 hours.

Child Support

Inland Revenue administers Child Support - a voluntary service that operates under the principle that even if parents separate, their financial obligations to their children do not end.

Either parent can apply for child support and it is compulsory for custodians to apply if they are on a benefit. Child Support collects payments from the paying parent and passes them on to the custodian or to the government if the custodian is on a benefit. If an assessment is more than the benefit then the excess is paid to the custodian. If the paying parent is on a benefit their child support is deducted from it.

The service uses a formula to work out how much a paying parent is liable to pay. Liability exists until children turn 19, marry or enter into a de facto relationship, or become financially independent.

A parent's taxable income, less a living allowance, multiplied by a percentage equals the amount of support a paying parent is liable for that year.

Work and Income New Zealand

Student loans

The student loans scheme is administered by the Department of Work and Income and Inland Revenue.

At the end of each academic year loans are transferred to Inland Revenue, which is responsible for assessing and collecting loan repayments until the loan is repaid. Repayments are deducted at source along with PAYE deductions.

The interest rate and repayment threshold and rate are reviewed annually.

The 2000/01 rates are: interest, 7 percent; repayment threshold, $14,768; and repayment rate, 10 percent.

Repayments from borrowers not on salary and wages are generally made directly to the Inland Revenue in three annual instalments.

As at 30 June 1999, 247,368 student loan borrowers had student loans worth a total of $2.9 billion.

Accident Compensation Corporation (ACC)

Inland Revenue collects the following on behalf of ACC.

  • Residual claims levy - payable annually by employers, self-employed and private domestic workers to fund the ongoing cost of work-related injuries sustained before 1 July 1999 and non-work injuries sustained before 1 July 1992.
  • Earners' account levy - payable annually by the self-employed to fund the ongoing cost of non-work injuries sustained between 1 July 1992 and 1 July 1999.
  • Earner premium - payable by all employees, including shareholder-employees and private domestic workers, to provide employees with ongoing cover from ACC for non-work injuries (the earner premium includes the earners' account levy and is collected by Inland Revenue as a part of PAYE deductions).

Accident Compensation Corporation

Tax on interest and dividend income

Interest and dividend income generally has tax deducted at source, as is the case with wages and salaries.

Resident Withholding Tax (RWT)

RWT is deducted from interest and dividends before the net amount is credited to the recipient. The tax is at a rate of 33 percent for dividends and the taxpayer can choose between a 19.5 percent, 33 percent and 39 percent rate for interest. If the recipient does not provide the interest payer with a taxpayer identification number, a higher 'no declaration' rate of 39 percent applies.

Certain recipients of interest or dividends (such as charitable/non-profit organisations, sports clubs and others) may claim exemption from RWT.

Imputation

Dividends received from a New Zealand company may have imputation credits and/or withholding payment credits attached. An imputation credit is a portion of the tax paid by the company on its taxable profit, and it thus avoids the double payment of tax (ie by the company and the shareholders) on the same income. Withholding payment credits arise when a New Zealand company receives overseas dividends.

Company taxation

Company taxation is levied under the Income Tax Act, although companies in New Zealand are taxed in a different way from individual taxpayers. The main differences are:

  • a company does not get any of the special exemptions or rebates that individuals are entitled to
  • a flat rate of tax (33 percent) applies to companies.

Company taxation assessed in the year ended 30 June 2000 was $4,158 million.

A company which meets New Zealand residency criteria is assessable on all income, whether derived in New Zealand or elsewhere.

Non-resident companies

A company not resident in New Zealand is only liable for tax on income derived from New Zealand. Non-resident companies are taxed at 33 cents in the dollar in respect of any activity they conduct in New Zealand. For most non-residents who simply derive interest or dividend income, NRWT (or AIL - Approved Issuer Levy, which, in some circumstances, can be paid instead of NRWT ) is a final New Zealand tax on that income.

Fringe Benefit Tax (FBT)

This is a tax on of the value of fringe benefits provided by an employer to an employee. The rate is generally the employee's marginal tax rate. It is payable by the employer on an annual or quarterly basis.

Taxable fringe benefits include:

  • The private use of a business motor vehicle by an employee.
  • Low-interest loans.
  • Free, subsidised or discounted transport and other goods and services.
  • Employer's contribution to accident, sickness or death benefit funds and insurance policies.

The total fringe benefit tax assessed in the year ended 30 June 2000 was $306 million.

Goods and Services Tax (GST)

Goods and Services Tax (GST) is a tax charged at 12.5 percent on supplies of goods and services made in New Zealand by a registered person in the course of a taxable activity.

Anyone with an annual turnover of $30,000 or more must register for GST. Persons registered for GST must charge and collect GST from their customers and pay it to Inland Revenue. GST-registered suppliers of goods and services pay GST on purchases and expenses made in the course of their business but may claim it back later.

GST is charged on the supply of goods and services. Some activities such as salaries and wages; hobby activities; and private sales of personal or domestic items are not taxable. By July 1999 there were 501,383 GST-registered persons in New Zealand.

The total GST assessed in the year ended 30 June 2000 was $5,936 million.

Business Tax Information Service

This free service provides advice to small business operators on their tax obligations and on managing their business tax affairs. For information call any Inland Revenue office.

Excise duty

The Customs and Excise Act 1996 provides for the imposition of excise duty on alcoholic beverages, tobacco products, super and regular grade petroleum, liquefied petroleum gas (LPG) and compressed natural gas (CNG) when compressed by a natural gas fuelling facility for use as a motor vehicle fuel.

Similarly excise equivalent duty is levied on the same goods if imported into New Zealand.

The relevant provisions are contained in Part VII of the Customs and Excise Act 1996 and the Third Schedule to the act.

New Zealand Customs Service

Roads taxation

The Road User Charges Act 1977 provides for the payment of road use fees by all vehicles over 3.5 tonnes and smaller vehicles powered by a fuel not taxed at source. Fuel excise duty is paid on all petrol, LPG and CNG used on the roading network.

Racing taxation

Government taxation is at the rate of 20 percent of betting profits of a racing club or totalisator agency board.

Totalisator duty totalled $35,800 million net during the year ended 30 June 1999.

Taxation review authorities

There are three authorities. Each consists of one person who is either a District Court judge, a barrister or a solicitor of the High Court of no fewer than seven years' practice, appointed by the Governor-General. The functions of the authority are to sit as a judicial authority for hearing and determining such objections to assessments of tax or duty, or the decisions or determinations of the Commissioner of Inland Revenue.

Inland Revenue

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