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Income Tax in New Zealand



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.

Types of taxable income:

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

Tax rates:

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

2017–2018
Income
Tax rate
Effective tax rate
Max tax of bracket
Cumulative tax
$0 – $14,000
10.5%
10.5%
$1,470
$1,470
$14,001 – $48,000
17.5%
10.5 - 15.5%
$5,950
$7,420
$48,001 – $70,000
30%
15.5 - 20.0%
$6,600
$14,020
Over $70,000
33%
20.0 - 33.0%

$14,020 + 33%
No-notification rate
48%
45%


     
Rates are for the tax year 1 April 2017 to 31 March 2018, and are based on tax code M (primary income without student loan) and excludes the ACC earners' levy. The earners' levy rate (including GST) for the period 1 April 2015 to 31 March 2016 is 1.45% ($1.45 per $100). 

In New Zealand, the income is taxed by the amount that falls within each tax bracket. For example, persons who earn $70,000 will pay only 30% on the amount that falls between $48,001 and $70,000 rather than paying on the full $70,000. Consequently, the corresponding income tax for that specific income will accumulate to $14,020— which comes to an overall effective tax rate of 20.02% 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, and payroll donations.Credits on income under $9,880 and for children were removed effective from 1 April 2013.

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 resident 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.

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 1.39% for the year from 1 April 2017 to 31 March 2018. It is payable on income up to $124,053.

Capital gains tax:

The New Zealand Government for the first time will introduce a very limited capital gains tax on property, to apply from 1 October 2015. The rate will be the same as the seller's income tax rate. The new tax will not apply to the family home or death estate or property sold as part of a relationship settlement. The main aim of the new tax was to collect money off property speculation – houses bought and sold within two years will be subject to the new tax.



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 than $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.

The standard method is the most common method. However a provisional tax payer can choose to estimate their provisional tax payments. Estimation allows the business owner to pay less or more tax depending on how they think their business is performing. Any underpayment is subject to interest, and no interest is paid on over payment, so it is important that they estimate their profit accurately.

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.

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. Tax pooling was introduced in 2003 to remove some of the worry associated with estimating provisional tax payments by allowing businesses to pool their payments together so the underpayments by some can be offset by the overpayments of others to reduce/enhance the interest they pay/receive.

Companies pay income tax at 28% on profits. Tax rates for individuals operating as a business (that is, individuals who are self-employed) are the same as for employees.



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Note: Information placed here in above is only for general perception. This may not reflect the latest status on law and may have changed in recent time. Please seek our professional opinion before applying the provision. Thanks.

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This blog is Created by CA Anil Kumar Jain.