Taxation in New Zealand

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Taxation in New Zealand is collected at a national level by the Inland Revenue Department (IRD) on behalf of the Government of New Zealand. National taxes are levied on personal and business income, as well as on the supply of goods and services. There is no capital gains tax, although certain "gains" such as profits on the sale of patent rights are deemed to be income.

Local property taxes (rates) are managed and collected by councils.

New Zealand went through a major programme of tax reform in the 1980s. The top marginal rate of income tax was reduced from 66% to 39% and corporate income tax rate from 48% to 33%. Goods and services tax was introduced, initially at a rate of 10% (now 12.5%). An OECD report in 2001 described the New Zealand tax system as one of the most neutral and efficient within its membership.^[1]

Tax reform continues in New Zealand with key issues being:

business taxes and the effect on productivity and competitiveness of NZ companies^[2]
differences in the treatment of various types of investment income^[3]
international tax rules ^[4]

1 Individual income tax
2 ACC earners levy
3 Business taxes
4 See also
5 References
6 External links

[edit] Individual income tax

New Zealand residents are liable for tax on their worldwide taxable income. In 2005-06, 43% of the New Zealand Government's core revenue ($22.9bn) came from individuals' income taxes.^[5]

[edit] Types of taxable income

salary and wages
business and self-employed income
income from investments (interest, dividends etc...)
rental income
overseas income (including income from an overseas pension)

[edit] Tax rates

Income tax varies dependent on income levels in any specific tax year (personal tax years run from 1 April to 31 March).

Income	Tax Rate
$0 - $38,000	19.5%
$38,001 - $60,000	33%
Over $60,000	39%
No declaration form (IR330)	49%

Rates are for the tax year 1 April 2006 to 31 March 2007.^[6]

In New Zealand, the income is taxed by the amount that falls within each tax bracket. In other words, if a person earns $60,000, they will only pay 33% on the amount that falls between $38,001 and $60,000 rather than paying this on the full $60,000.

[edit] Tax deducted at source

In most cases employers deduct the relevant amount of income tax from salary and wages prior to these being paid to the individual. This system, known as Pay-as-you-earn, or PAYE, was introduced in 1958, prior to which employees paid tax annually.

In addition, Banks and other financial institutions deduct the relevant amount of income tax on interest and dividends as these are earned. This is known as Residents Withholding Tax.

At the end of each tax year individuals who may not have paid the correct amount of income tax are required to submit a personal tax summary, to allow the IRD to calculate any under or overpayment of tax made during the year.

[edit] Double taxation agreements

Where an individual is tax resident in more than one country they may be liable to pay tax more than once on the same income. New Zealand has double taxation agreements with various countries that set out which country will tax specific types of income.^[7]

**These countries have double tax agreements with New Zealand**
Australia	Indonesia	Sweden
Belgium	Ireland	Switzerland
Canada	Italy	Taiwan
China	Japan	Thailand
Denmark	Malaysia	The Netherlands
Fiji	Norway	The Philippines
Finland	Republic of Korea	United Arab Emirates
France	Russian Federation	United Kingdom
Germany	Singapore	United States of America
India	South Africa	Mexico
Austria	Poland	Spain
Chile

[edit] ACC earners levy

All employees pay an earners levy to cover the cost of non-work related injuries. It is collected by Inland Revenue on behalf of the Accident Compensation Corporation (ACC).

The earners levy is payable on salary and wages plus any other income that is subject to PAYE, for example overtime, bonuses or holiday pay. The levy is currently 1.3% and is payable on income up to a maximum of $96,619 (for the tax year 1 April 2006 to 31 March 2007).^[6]

[edit] Business taxes

[edit] Business income tax

Businesses in New Zealand pay income tax on their net profit earned in any specific tax year. For most businesses the tax year runs from 1 April to 31 March but businesses can apply to the IRD for this to be changed.

Payments are made in three instalments through the year. These are known as provisional tax payments. At the end of the year the business files a tax return (due on the following 7 July for businesses with a tax year ending 31 March) and any under or overpayment is then calculated.

Companies pay income tax at 33% on profits.^[8] Tax rates for individuals operating as a business (eg individuals who are self-employed) are the same as for employees^[9] (see individual tax rates above)

[edit] Goods and Services Tax

Main article: Goods and Services Tax (New Zealand)

Goods and services tax (GST) is an indirect tax introduced in New Zealand in 1986. This represented a major change in New Zealand taxation policy as until this point almost all revenue had been raised via direct taxes. GST now makes up 19% of the New Zealand Government's core revenue.^[5]

Most products or services sold in New Zealand incur GST at a rate of 12.5%.^[10] The main exceptions are financial services (eg banking and life insurance) and the export of goods and services overseas.

All businesses are required to register for GST once their turnover exceeds (or is likely to exceed) $40,000 per annum.^[11] Once registered, businesses charge GST on all goods and services they supply and can reclaim any GST they have been charged on goods and services they have purchased.

[edit] Fringe Benefit Tax

Main article: Fringe Benefits Tax (New Zealand)

Employers are liable to pay Fringe benefit tax (FBT) on benefits given to employees in addition to their salary or wages (eg motor vehicles or low interest loans)^[12]

There are several methods available for calculating FBT liability, including an option of paying a flat rate of 64% on all benefits provided.^[13]