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New Zealand Revenue 2005-06.png

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 April 2000 and reduced to 38% in April 2009) 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]

Contents

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]

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Types of taxable income

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 - $14,000 12.5%
$14,001 - $48,000 21%
$48,001 - $70,000 33%
Over $70,000 38%
No-notification rate 45%

Rates are for the tax year 1 April 2009 to 31 March 2010, and are based on tax code M (primary income without student loan).[6]

In New Zealand, the income is taxed by the amount that falls within each tax bracket. For example, if a person earns $70,000, they will only pay 33% on the amount that falls between $48,001 and $70,000 rather than paying this on the full $70,000. Consequently, the corresponding income tax for that specific income will accumulate to $16,150 or about 23% of the entire amount.

Tax credits

The amount of tax actually payable can be reduced by claiming tax credits, e.g. for donations, childcare and housekeeper, independent earners, payroll donations, income under $9,880, and children.[7]

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[8], to allow the IRD to calculate any under or overpayment of tax made during the year.

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.[9]

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

Some agreements protect pension payments as well. The agreement with the United States, for example, prohibits New Zealand from taxing American social security or government pension payments, and the reverse is also true.[10]

ACC earner's levy

All employees pay an earner's 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 earner's 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 1.7% for the year from 1 April 2009 to 31 March 2010. It is payable on income up to $106,473. [6]

Business taxes

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.

A provisional tax payer is a person or a company that had a residual income tax of more that $2500 in the previous financial year. There are three options for paying provisional tax; standard method, estimated method and GST Ratio option.

  • Under the standard method provisional tax payers make three provisional tax installments through the year based on the previous years tax liability.[11]
  • The standard method is the most common method. However a provisional tax payer can chose to estimate their provisional tax payments. Estimation allows the business owner pay less or more tax depending on how they think their business is performing. Any under or overpayment is subject to interest so it is important that they can estimate their profit accurately.[11]
  • A provisional tax payer can also pay provisional tax using the GST ratio option. This is based on what your previous year’s residual tax liability was and what your GST Taxable supplies were for that year. You then apply this percentage to your current period GST return. Under this option you pay provisional tax at the same time as you pay GST.[12]

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.[13] Tax rates for individuals operating as a business (that is, individuals who are self-employed) are the same as for employees.[14] (See individual tax rates, above.)

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%.[15] 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) $60,000 per annum.[16] 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.

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)[17]

There are several methods available for calculating FBT liability, including an option of paying a flat rate of 64% on all benefits provided.[18]

Excise Duties

In New Zealand excise or a duty duties are charged on a number of products, including alcohol products, tobacco products, and some fuels.[19]

The rates for alcohol products are as follows:

Excise Duty on Alcohol Products in New Zealand
Product Alcohol content Rate
Beer More than 1.15%, but not more than 2.5% 37.142¢ per litre
More than 2.5% $2.4765 per litre of alcohol
Wine (not fortified) Not more than 14% $2.4765 per litre
More than 14% $4.5102 per litre of alcohol
Fortified Wine, Spirits and spirituous breverages $2.4765 per litre of alcohol
Other fermented beverages (such as cider, perry, mead), Liqueurs and cordials, and Ice Cream More than 1.15% but not more than 2.5% 37.142¢ per litre
More than 2.5%, but not more than 6% $2.4765 per litre of alcohol
More than 6%, but not more than 9% $1.9811 per litre
More than 9%, but not more than 14% $2.4765 per litre
More than 14% $4.5105 per litre of alcohol

There are also excise duties on tobacco products, with a rate of $294.62 per thousand cigarettes, and $368.72 per kilo of tobacco, on other tobacco products.

The excise duties on fuel are 42.524¢ per litre (plus 8¢ per gram of lead) on motor fuel, 30.2¢ per litre on Methanol and 10.4¢ per litre on Liquified petroleum gas. Compressed natural gas has an excise of $3.17 per gigajoule.

See also

References

  1. ^ http://www.oecd.org/dataoecd/29/27/1891375.pdf The tax system in New Zealand: An appraisal and options for change
  2. ^ http://www.taxpolicy.ird.govt.nz/publications/files/BTR2006.pdf NZ Government discussion document on business taxes
  3. ^ http://www.taxpolicy.ird.govt.nz/publications/files/html/invincome/index.html NZ Government discussion document on taxation of investment income
  4. ^ http://www.taxpolicy.ird.govt.nz/index.php?view=461 NZ Government media release on forthcoming international tax review
  5. ^ a b http://www.treasury.govt.nz/budget2005/taxpayers/ Key facts for taxpayers from the NZ Treasury website
  6. ^ a b http://www.ird.govt.nz/income-tax-individual/itaxsalaryandwage-incometaxrates.html Income tax rates for individuals from the IRD website
  7. ^ http://www.ird.govt.nz/income-tax-individual/tax-credits/
  8. ^ http://www.refundnow.co.nz
  9. ^ http://www.ird.govt.nz/yoursituation-nonres/double-tax/ Double tax agreements from the IRD website
  10. ^ http://www.irs.gov/pub/irs-trty/newzld.pdf (See Article 18, Pensions and Annuities)
  11. ^ a b http://www.nztax.net/node/45.html Provisional Tax Breakdown
  12. ^ http://www.nztax.net/node/45.html GST Ratio Option
  13. ^ http://www.ird.govt.nz/business-income-tax/paying-tax/tax-rates/bit-taxrates-companytax.html Taxing companies from the IRD website
  14. ^ http://www.ird.govt.nz/business-income-tax/paying-tax/tax-rates/bit-taxrates-soletradertax.html Taxing sole traders from the IRD website
  15. ^ http://www.ird.govt.nz/gst/ GST from the IRD website
  16. ^ http://www.ird.govt.nz/gst/gst-faq.html Common questions about GST from the IRD website
  17. ^ http://www.ird.govt.nz/fbt/overview/fbt-attributedbenefit.html Fringe benefits overview from the IRD website
  18. ^ http://www.ird.govt.nz/fbt/calculating/ Calculating FBT from the IRD website
  19. ^ http://www.customs.govt.nz/manufacturers/Excise+Duty.htm

External links


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