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. Some goods and services carry a specific tax, referred to as an excise or a duty eg Alcohol excise or gaming duty. These are collected by a range of government agencies such as the New Zealand Customs Service.
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 33% (since increased to 39% in 2001) and corporate income tax rate from 48% to 33% (reduced to 30% in 2008). 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]
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[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]
The New Zealand government has announced a change in tax rates and thresholds to take effect from 1 October 2008.
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]
| 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 1.4% for the year from 1 April 2008 to 31 March 2009. It is payable on income up to a maximum amount. The amount for the tax year 1 April 2006 to 31 March 2007 was of $96,619).[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 installments 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 30% on profits.[8] Tax rates for individuals operating as a business (that is, individuals who are self-employed) are the same as for employees.[9] (See individual tax rates, above.)
[edit] Goods and Services Tax
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
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]
[edit] See also
- Dividend tax
- Fiscal neutrality
- International taxation
- Laffer curve and the optimal tax rate argument
- Tax incidence
- Tax avoidance/evasion
- Tax resistance
- Tax haven
- Tax law
[edit] References
- ^ http://www.oecd.org/dataoecd/29/27/1891375.pdf The tax system in New Zealand: An appraisal and options for change
- ^ http://www.taxpolicy.ird.govt.nz/publications/files/BTR2006.pdf NZ Government discussion document on business taxes
- ^ http://www.taxpolicy.ird.govt.nz/publications/files/html/invincome/index.html NZ Government discussion document on taxation of investment income
- ^ http://www.taxpolicy.ird.govt.nz/index.php?view=461 NZ Government media release on forthcoming international tax review
- ^ a b http://www.treasury.govt.nz/budget2005/taxpayers/ Key facts for taxpayers from the NZ Treasury website
- ^ a b http://www.ird.govt.nz/income-tax-individual/itaxsalaryandwage-incometaxrates.html Income tax rates for individuals from the IRD website
- ^ http://www.ird.govt.nz/yoursituation-nonres/double-tax/ Double tax agreements from the IRD website
- ^ http://www.ird.govt.nz/business-income-tax/paying-tax/tax-rates/bit-taxrates-companytax.html Taxing companies from the IRD website
- ^ http://www.ird.govt.nz/business-income-tax/paying-tax/tax-rates/bit-taxrates-soletradertax.html Taxing sole traders from the IRD website
- ^ http://www.ird.govt.nz/gst/ GST from the IRD website
- ^ http://www.ird.govt.nz/gst/gst-faq.html Common questions about GST from the IRD website
- ^ http://www.ird.govt.nz/fbt/overview/fbt-attributedbenefit.html Fringe benefits overview from the IRD website
- ^ http://www.ird.govt.nz/fbt/calculating/ Calculating FBT from the IRD website
