CA ANZ Core 4: Tax (NZ) cheat sheet

The Inland Revenue Department (IRD) administers the tax system under the Tax Administration Act 1994; the Commissioner of Inland Revenue has statutory powers to assess, amend, and enforce tax obligations.

New Zealand operates a self-assessment system: taxpayers must file returns and calculate their own tax liability; the Commissioner may amend assessments within four years (time bar), extended to 20 years for wilful evasion or fraud.

The tax year runs from 1 April to 31 March. Provisional tax is payable in instalments during the year for taxpayers with residual income tax above the threshold ($5,000 for 2024–25).

Goods and services tax (GST) applies at 15% to most supplies of goods and services in New Zealand; registration is mandatory when taxable supplies exceed $60,000 in any 12-month period.

Core income tax rates for individuals: 10.5% up to $15,600; 17.5% to $53,500; 30% to $78,100; 33% to $180,000; 39% above $180,000 (from 1 April 2024).

The Commissioner may impose shortfall penalties for tax positions that are not reasonably arguable, ranging from 20% (not taking reasonable care) to 150% (evasion), with reductions for voluntary disclosure and cooperation.

Tax disputes follow a statutory process: notice of proposed adjustment (NOPA), conference, and adjudication; taxpayers may challenge assessments in the Taxation Review Authority or the High Court.

Use-of-money interest (UOMI) applies to underpayments and overpayments of tax; the underpayment rate is set by regulation and is generally higher than the overpayment rate.

Assessable income includes income from employment, business, investments, and any other source, unless specifically exempt. Capital gains are generally not taxable except under specific provisions (e.g., bright-line, land, financial arrangements).

Deductions are allowed for expenditure or loss incurred in deriving assessable income or carrying on a business for that purpose, subject to capital limitation and specific rules (e.g., entertainment, motor vehicles).

The general permission (s DA 1 ITA 2007) permits deductions for expenditure with a nexus to income; the general limitation denies deductions for capital expenditure, private or domestic expenses, and expenditure incurred in deriving exempt income.

Timing: income is derived when it is received or becomes receivable; expenditure is incurred when there is a legal obligation to pay, not merely when invoiced or paid. The accrual rules apply to financial arrangements.

Trading stock must be valued at cost or market value, whichever is lower, at year-end; specific valuation methods include FIFO, weighted average, and discounted selling price (for certain retailers).

Depreciation is allowed on depreciable property (tangible assets with a useful life > 1 year) using rates set by the Commissioner; the diminishing value (DV) or straight-line (SL) method may be used.

The accrual rules (financial arrangements) spread income and expenditure over the term of the arrangement using the yield-to-maturity or expected value method, unless the arrangement is excepted (e.g., short-term, small value).

Provisional tax is calculated using the uplift method (prior year's residual income tax increased by 5% or 10%) or the estimation method; use-of-money interest applies to underpayments.

Employment income includes salary, wages, bonuses, commissions, allowances, and the value of benefits provided by employers (fringe benefits). It is taxed under the PAYE system, with withholding obligations on employers.

Fringe benefit tax (FBT) applies to benefits such as motor vehicles, low-interest loans, and free goods/services; employers may use the single rate (63.93%) or the alternate rate calculation.

Personal deductions are limited: individuals may deduct specific expenses such as income protection insurance premiums, certain redundancy payments, and expenses incurred in earning employment income (only if not reimbursed and specific rules apply).

The independent earner tax credit (IETC) provides up to $520 per year for individuals earning between $24,000 and $48,000 who do not receive a main benefit or Working for Families.

Working for Families tax credits (WFF) are available to families with dependent children, subject to income thresholds and abatement; they are administered by IRD and paid through the tax system.

Student loan repayments are deducted from employment income at 12% (2024) of income above the annual repayment threshold ($24,128 for 2024–25).

ACC earners' levy is deducted from employment income at a rate set annually (1.53% for 2024–25) on earnings up to the maximum liable earnings ($142,283).

Individuals may claim a tax credit for donations to approved charitable organisations, up to 33.33% of the donation, capped at 33.33% of taxable income.

Business income includes gross income from sales, services, and other business activities; expenses are deductible if incurred in deriving that income, subject to the general permission and specific limitations.

Trading stock is valued at the lower of cost or market value at balance date; cost includes direct and indirect costs of production, and specific identification, FIFO, or weighted average cost methods are permitted.

The accrual rules apply to financial arrangements (e.g., loans, derivatives, debt securities) to spread income and expenditure over the term; excepted financial arrangements include short-term agreements (≤ 60 days) and small-value loans (< $10,000).

Bad debts may be deducted if written off during the year and the debt was previously included in income; a deduction is not allowed for debts that are not yet due or for capital debts.

Businesses may use the cash or accrual basis for tax; the accrual basis is mandatory for some entities (e.g., companies) and for GST-registered businesses with turnover > $60,000.

The entertainment limitation restricts deductions for business entertainment to 50% (or 100% for certain events); the limitation applies to food, beverages, and recreation.

Motor vehicle expenses may be deducted using the kilometre rate method (e.g., 88 cents/km for 2024) or the actual cost method, with logbook requirements for business use.

The 20-hour rule allows deductions for certain expenses (e.g., home office) if the area is used principally for business; otherwise, apportionment is required.

Companies are taxed at a flat rate of 28% on their taxable income; dividends paid to shareholders are generally imputed, with a 28% imputation credit attached, and shareholders receive a dividend imputation credit.

Partnerships are not taxed as entities; income and expenses are allocated to partners according to their partnership agreement, and partners pay tax at their personal rates.

Trusts are taxed on trustee income at 33% (from 2024); beneficiary income is taxed to beneficiaries at their personal rates, and distributions to beneficiaries may be subject to tax if not vested.

Look-through companies (LTCs) are transparent for tax: income and expenses flow through to owners, who pay tax at personal rates; losses can be offset against other income, subject to the LTC loss limitation rules.

A company may elect to become an LTC if it meets criteria: it is a close company, has five or fewer owners, and all owners are natural persons or trustees. The election is irrevocable for two years.

Imputation credits: companies maintain an imputation credit account (ICA); credits arise from income tax paid and are attached to dividends. A benchmark dividend rule ensures consistent imputation ratios.

Qualifying companies (QC) and loss attributing qualifying companies (LAQC) have been replaced by LTCs; existing QCs may transition to LTCs or continue with specific rules.

Trustee income is taxed at 33% and cannot be distributed with imputation credits; beneficiary income may include imputation credits if the trust receives dividends.

GST is a value-added tax at 15% on the supply of goods and services in New Zealand by a registered person, and on imports. Certain supplies are zero-rated (e.g., exports, going concerns) or exempt (e.g., financial services, residential rent).

Registration is mandatory when taxable supplies exceed $60,000 in any 12-month period, or expected to exceed in the next 12 months; voluntary registration is available for businesses making supplies.

GST returns are filed monthly, two-monthly, or six-monthly, depending on turnover; the return must be filed and payment made by the due date (usually the 28th of the month following the period).

GST output tax is charged on sales; input tax is claimed on purchases used for making taxable supplies. Input tax is not claimable on expenses related to exempt supplies or private use.

The GST treatment of land and property: sales of land are generally taxable, but the sale of a residential dwelling (with some exceptions) is exempt. Commercial rentals are taxable.

Zero-rated supplies include exports, supplies of going concerns, and supplies of goods to non-residents (subject to conditions). Exempt supplies include financial services, residential accommodation, and fine metal.

Adjustments for GST: if goods are used for both taxable and exempt purposes, input tax must be apportioned. Changes in use may require adjustments over time.

GST groups: companies with 75% common ownership may form a GST group and file a single return, simplifying compliance.

New Zealand does not have a general capital gains tax; however, gains from certain property transactions are taxable: bright-line rule (residential property sold within 10 years, from 1 July 2024), land acquired with intention to sell, and land dealing.

The bright-line test taxes gains on residential property sold within the applicable period (10 years for properties acquired on or after 1 July 2024; 5 years for earlier acquisitions). The main home may be excluded or subject to a time apportionment.

Depreciation is available on depreciable property (e.g., buildings, plant, equipment) at rates set by the Commissioner. The building depreciation rate is 0% for buildings with a useful life of 50 years or more (from 2011).

Depreciation methods: diminishing value (DV) or straight-line (SL). The DV rate is typically 1.5 times the SL rate. Depreciation is calculated on the adjusted tax value (cost less accumulated depreciation).

When depreciable property is sold, depreciation recovered (sale price above adjusted tax value) is taxable income; a loss on sale may be deductible if the property was used for business.

The intention to sell test: land acquired with a purpose or intention of selling is taxable, even if not sold within a specific period. The test considers the dominant purpose at acquisition.

The land dealing business test: persons in the business of dealing in land are taxed on profits from land sales. The test looks at the nature of the activity and frequency.

The 10-year rule for land: land acquired by a person associated with a land dealer may be taxable if sold within 10 years, subject to certain exceptions.

New Zealand taxes residents on worldwide income, with double tax agreements (DTAs) providing relief from double taxation through foreign tax credits or exemptions. Non-residents are taxed on NZ-sourced income only.

Foreign investment fund (FIF) rules apply to NZ residents with investments in foreign entities (e.g., shares, units) exceeding $50,000; income can be calculated using the fair dividend rate (FDR) method (5% of value) or the comparative value method.

Controlled foreign company (CFC) rules attribute income of a CFC to NZ residents with a 50% or more control interest; income is calculated under specific methods and may be taxed in NZ.

Transfer pricing rules require cross-border transactions between associated parties to be at arm's length; the IRD may adjust prices if they are not. Documentation requirements apply for large multinationals.

Withholding taxes on cross-border payments: dividends (30% or reduced by DTA), interest (15% or reduced), royalties (15% or reduced). Non-resident withholding tax (NRWT) applies.

GST on cross-border services: since 2016, offshore suppliers of remote services to NZ consumers must register for GST if supplies exceed $60,000. Low-value imported goods (≤ $1,000) may also be subject to GST.

The thin capitalisation rules limit interest deductions for NZ companies with high debt levels relative to equity, particularly for multinationals. The safe harbour debt ratio is 60% for non-residents.

Exit tax: individuals ceasing NZ tax residency may be taxed on certain assets (e.g., shares, property) as if sold at market value, subject to exemptions.

Tax avoidance is defined as an arrangement that has the purpose or effect of defeating the intent and application of a tax law. The general anti-avoidance rule (GAAR) in s BG 1 and s GA 1 allows the Commissioner to counteract tax advantages.

The Supreme Court in Ben Nevis (2014) set out a two-step test: (1) identify the tax advantage; (2) determine whether the arrangement is a sham or has a commercial reality that is consistent with the tax law's purpose.

Penalties for avoidance: the Commissioner may impose a 100% shortfall penalty for an abusive tax position (not merely a mistake). Voluntary disclosure may reduce penalties.

Tax compliance obligations: filing returns, maintaining records (7 years), withholding taxes, and providing information to IRD. Failure to comply may result in penalties, interest, and prosecution.

Tax agents and advisors must comply with the Code of Professional Conduct; ethical considerations include confidentiality, independence, and avoiding conflicts of interest.

The Commissioner may issue binding rulings (public and private) that provide certainty on tax treatment; taxpayers can rely on them if the arrangement is fully disclosed.

Record-keeping: businesses must retain records for at least 7 years, including electronic records. Failure to keep records is an offence and may result in penalties.

The IRD uses data matching and risk analysis to identify non-compliance; taxpayers may be subject to audits and investigations. Cooperation may reduce penalties.