Appendix – Tax Facts – A Brief Summary — Financial Business Advisor Support Advice Resource New Zealand Compliance,Legislation,Tax,Employment,Finance

The information contained in this appendix is subject to change. Check our IRD Update page for changes.

A5 Goods & Services Tax (GST)
A6 Motor Vehicle Reimbursement Allowances
A7 Depreciation
A8 Dividends
A9 KiwiSaver
A10 Non-Resident Withholding Tax Rates
A11 Income Tax Payment Dates
A12 PAYE Electronic Filing
A13 Resident Withholding Tax Rates
A14 Proposed ACC Earner Levy

A1 Income Tax Rates

A1.1 Individual Rates

Independent tax earner’s credit for taxable incomes of

$24,000-$48,000. Available if you:

have an annual income between $24,000 and $48,000 for the tax year;
are tax resident in New Zealand;
do not receive an income tested benefit, a Veteran’s Pension, New Zealand Superannuation, or overseas equivalent; and
neither personally nor a partner is entitled to working for families tax credits, or is receiving an overseas equivalent

The credit is $520 ($10 per week) for an income of $24,000 to $44,000. If you are eligible but earn over $44,000, your annual entitlement to IETC decreases by 13 cents for every additional dollar earned up to $48,000.

A1.2 Companies

28% for resident & non-resident companies.

A1.3 Trusts

Trustee income taxed at 33%

Beneficiary income taxed at beneficiary’s marginal tax rate, except distributions to minors (under 16 years of age) which are taxed at the trustee rate of 33% (excluding distributions to minors of $1,000 or less).

A2 Use of Money Interest

Use of money interest is paid by the IRD on overpayments of tax and is charged by the IRD on underpayments of tax. The rates vary and were updated with effect from 29 August 2019:

8.35% on underpayments of tax (deductible)
0.81% on overpayments of tax (assessable)

Further updates will be reflected here.

A3 Entertainment Expenditure

Certain categories of entertainment expenditure are only 50% deductible. These include:

Corporate boxes
Holiday accommodation
Yachts and other pleasure craft
Food and beverages provided:
At any of the above, or
Off the premises of the taxpayer (e.g. business lunch), or
On the premises of the taxpayer at a social function

There are a number of exceptions from these rules. The 50% add back is subject to an annual GST adjustment.

A4 Fringe Benefit Tax (FBT)

A4.1 FBT Rates

Attributed benefits rates using the alternate rate system - applied to Fringe benefit-inclusive cash remuneration (FBICR):

Motor vehicles and loans, plus other categories of benefits exceeding $1,000 by category, must be attributed. Benefits that cannot be attributed are generally taxed at 42.86%. 49.25% applies for FBT received as a shareholder- employee (or associate) with 10% or more shareholding in the employer company.

General exemption for ‘other benefits’: $300 per employee per quarter with total benefits for all employees not to exceed $22,500pa.

A4.2 Return & Payment Dates

A4.3 Fringe Benefit Value of Motor Vehicles

5% per quarter of original cost (GST inclusive) of vehicle 20% of cost if the FBT return is filed on an annual basis

A4.4 Low or Interest Free Loans

Benchmark interest rate varies and is reviewed quarterly. For current rates at any point in time refer here.

A5 Goods & Services Tax (GST)

Standard rate: 15%

Exported goods and services: 0%

Supplies exempt from GST include:

Financial services
Residential rental income
Wages/salaries and most directors’ fees

A6 Motor Vehicle Reimbursement Allowances

Several options are available. See 26.4.5. The IRD is implementing a new 2-tiered Kilometre Rate Method for establishing reimbursement rates for employees who use private vehicles for work purposes. These rates will also be available to the self-employed who can use them to claim business costs of using their motor vehicles. The 5,000 km limit will no longer apply.

A7 Depreciation

Depreciation is calculated based on IRD approved economic rates. The IRD has a rate finder on its website (www.ird.govt.nz). Either the straight line or diminished value method can be used.

Low value assets (costing $500 or less) can be written off in the year acquired.

A8 Dividends

Dividends are taxed at a flat RWT rate of 33% of gross dividends (less imputation credits).

Dividends from a listed PIE are not liable for RWT.

A9 KiwiSaver

Employees and employers each contribute 3% or more of the member employee’s gross pay.

Members are entitled to up to $10 tax credit per week as a government subsidy.

All employer contributions are subject to employer superannuation contribution tax (ESCT)

A10 Non-Resident Withholding Tax Rates

*The rate is normally 0% if fully imputed dividends are paid subject to double tax agreement.

The rate of NRWT on interest is zero if the Approved Issuer Levy of 2% has been paid.

A11 Income Tax Payment Dates

A12 PAYE Electronic Filing

Large employers must file their Employer Monthly Schedule (IR348) electronically. (See option also for Payday filing for PAYE in 26.4.3).

Employers with fewer than 50 employees may qualify for an exemption.

A13 Resident Withholding Tax Rates

Interest

A14 Proposed ACC Earner Levy

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Chapter 1 - New Zealand Tax Framework

New Zealand taxation is imposed by the Income Tax Act 2007 (ITA). The basis for calculating tax is summarised in the following flowchart from the Core Provisions set out in Part B of the Act. This overview provides the context for details discussed in this quick reference guide.

Chapter 2 – Tax Planning

Tax rates have come down in the past several years, but rates still vary for different taxpayers such as individuals, companies and trusts. There are also special rules that apply to certain taxpayers and not to others. While this is so, opportunities will exist to structure your affairs to benefit from the different rules and tax rates.

Chapter 3 – Tax Residence and Source of Income

“Tax residence” and “source of income” are central to determining liability for taxation in New Zealand. Residence determines the jurisdiction and source relates to where income is earned or deemed to be earned.

Chapter 4 – Assessable Income

Not every gain received by you or your business is taxable. The Income Tax Act only imposes tax on taxable income.

Chapter 5 – Deductible Expenditure

The questions of what expenditure is deductible and when, are of prime importance in determining your tax liability. For most expenditure, the question of deductibility is straight forward. However, there are exceptions. This chapter looks at what you may deduct and when.

Chapter 6 - Depreciation

Expenditure on capital assets cannot be deducted immediately. The value of the asset depreciates over time and the cost is spread over its useful life. Costs are there- by matched against any income that the asset generates and the tax deduction occurs each year on a more gradual basis until the asset is fully depreciated.

Chapter 7 - Entertainment Tax

Entertainment expenditure must be for business purposes to be deductible and special rules exist to clarify what may be claimed for tax. The rules are slightly different for GST. There is a working party looking at simplifying the regime but in the meantime, the current rules apply.

Chapter 8 - Trading Stock (or Inventory)

Trading stock purchases are a regular and significant revenue expense for many businesses. However unlike many other revenue expenses, a tax deduction for trading stock is only allowed at the time the stock is sold.

Chapter 9 – Real Estate Transactions

This chapter distinguishes between taxable and non-taxable property transactions.

Chapter 10 - Financial Arrangements

The Financial Arrangements or Accrual Rules are a detailed set of rules relating to the tax treatment of debts and debt instruments and transactions including debt related aspects.

Chapter 11 - Business Structures

Your business structure can have a huge impact on taxation and the legal framework under which your business operates. Here, we compare the different business structures available to you. These are discussed in greater depth in following chapters.

Chapter 12 - Companies

Companies are a popular structure for doing business because they allow a degree of protection and flexibility. Companies offer business people the advantages of limited liability and may provide a beneficial structure for tax purposes.

Chapter 13 – Partnerships and Trusts

A partnership is formed by a contract between parties, to carry on business or commercial activities in common, with a view to making a profit.

A trust is a legal promise by a trustee or trustees to hold and administer property, sold or gifted by a settlor, for the benefit of identified beneficiaries.

Chapter 14 – Farming

Primary production in New Zealand forms a major part of our GDP. Not surprisingly there are specific tax provisions relating to this form of enterprise. Agricultural production is unique since it is the only form of production involving “natural increase”. As a result, special accounting and tax rules are required.

Chapter 15 – Forestry

A number of events in the forest life cycle give rise to taxable forestry income. Clearly, this includes the net proceeds of sales, including felled timber and thinnings etc. In addition, sales or transfers of forestry or cutting rights are also taxable. The forestry regime also contains special rules for deduction of forestry expenditure.

Chapter 16 – PIE and Offshore Investments

Being a small country, much of our investment is off shore. Although this accounts for a relatively small portion of New Zealand’s tax revenue, overseas investment is governed by quite a complex regime and affects a large percentage of the population either directly or indirectly.

Chapter 17 – Provisional Tax

Provisional tax is a means of paying tax on income, that is not fully taxed at source via PAYE or other withholding payments.

Chapter 18 – Withholding Taxes

In this chapter, we consider withholding tax obligations in respect of interest, dividends and royalties paid. We also look at Non- Resident Contractors Tax. Chapter 26 “Employment Responsibilities” discusses withholding tax obligations when you pay New Zealand resident contractors, including commission agents, builders etc.

Chapter 19 – Fringe Benefit Tax

Fringe benefit tax (FBT) was introduced to tax non-cash benefits provided to employees or associates of employees. These rules also apply to non-cash benefits provided to shareholder employees and their associates.

Chapter 20 – Goods and Services Tax

The application of GST to the majority of New Zealand business transactions is straightforward. GST can however give rise to difficult issues, especially in the area of “non standard” transactions. This would include the sale and purchase of real estate, financial services based transactions, GST on fringe benefits provided and GST adjustments for entertainment tax.

Chapter 21 – Accident Compensation

Accidents and injuries in New Zealand are covered by a publicly funded insurance scheme administered by the Accident Compensation Corporation (ACC).

Chapter 22 – Year-End Tax Planning

Year-end tax planning is an important part of managing your tax expense. Year-end tax planning should be undertaken prior to year end. For 31 March balance date businesses, this review should be conducted in February.

Chapter 23 – Tax Administration

Unless these matters are handled by a bookkeeper or dealt with efficiently, a considerable amount of your otherwise productive business time will be expended in complying with your basic tax obligations.

Chapter 24 – Penalties, Binding Rulings & Disputes Resolutions

Failure to meet tax obligations may result in civil penalties, criminal penalties (discussed below) or both. Further, the penalties are not deductible for taxation purposes!

Chapter 25 – Business Legislation

The business laws addressed in this chapter have a huge bearing on how you can and can’t do business in New Zealand. In the documentation that you keep for running your business, it is well worth noting relevant legal matters and how you plan to ensure compliance.

Chapter 26 – Employment Responsibilities

This section summarises key points to help you fulfil your obligations as a good employer, reduce day-to-day problems and comply with the law.

Appendix – Tax Facts – A Brief Summary

Quick Reference Guide