CA ANZ Core 4: Tax (NZ) flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Time bar for assessments

The Commissioner may amend an assessment within four years from the end of the tax year in which the return was filed, except in cases of fraud or wilful evasion (20-year period).

Provisional tax threshold

Provisional tax is generally required when residual income tax exceeds $5,000 for the prior year; instalments are due during the year, with use-of-money interest for underpayment.

Shortfall penalty rates

Shortfall penalties range from 20% for not taking reasonable care to 150% for evasion; the rate depends on the taxpayer's behaviour and may be reduced for voluntary disclosure.

General permission for deductions

Under s DA 1, a deduction is allowed for expenditure or loss incurred in deriving assessable income or carrying on a business for that purpose, subject to the general limitations.

Capital limitation

Capital expenditure is not deductible under the general permission, except where a specific provision allows it (e.g., depreciation, certain capital expenses).

Trading stock valuation

Trading stock must be valued at the lower of cost or market value at year-end; cost includes direct and indirect costs, and methods include FIFO and weighted average.

Accrual rules

The accrual rules spread income and expenditure from financial arrangements over their term using methods such as yield to maturity, ensuring income is recognised as it accrues.

PAYE system

Pay as you earn (PAYE) requires employers to withhold income tax from salary and wages and remit it to IRD, along with ACC levies and student loan repayments.

Fringe benefit tax

FBT is a tax on non-cash benefits provided to employees, such as motor vehicles and low-interest loans; employers may use the single rate or alternate rate calculation.

Independent earner tax credit

The 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

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

Entertainment limitation

Deductions for business entertainment (food, beverages, recreation) are limited to 50%, except for certain events such as promotions or employee social functions.

Bad debt deduction

A bad debt may be deducted if it is written off during the year and was previously included in assessable income; the deduction is not available for capital debts.

Cash basis vs accrual basis

Cash basis recognises income when received and expenses when paid; accrual basis recognises income when earned and expenses when incurred. Companies generally use accrual.

Company tax rate

Companies are taxed at a flat rate of 28% on taxable income; dividends to shareholders are generally imputed with a 28% credit.

Partnership taxation

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

Look-through company

An LTC is 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 limitation rules.

Trustee tax rate

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

Imputation credits

Imputation credits represent income tax paid by a company and are attached to dividends; they can be used by shareholders to offset their tax liability.

GST registration threshold

GST registration is mandatory when taxable supplies exceed $60,000 in any 12-month period; voluntary registration is available for businesses making supplies.

GST zero-rated supplies

Zero-rated supplies include exports, going concerns, and certain supplies to non-residents; GST is charged at 0% but input tax can still be claimed.

GST exempt supplies

Exempt supplies include financial services, residential accommodation, and fine metal; no GST is charged and input tax cannot be claimed.

Bright-line test

The bright-line test taxes gains on residential property sold within 10 years (for properties acquired on or after 1 July 2024); the main home may be excluded.

Depreciation methods

Depreciation can be calculated using diminishing value (DV) or straight-line (SL) methods; the DV rate is typically 1.5 times the SL rate.

Depreciation recovery

When depreciable property is sold for more than its adjusted tax value, the excess depreciation recovered is taxable income.

Intention to sell land

Land acquired with a purpose or intention of selling is taxable, even if not sold within a specific period; the dominant purpose at acquisition is considered.

Foreign investment fund rules

FIF rules apply to NZ residents with foreign investments over $50,000; income can be calculated using the fair dividend rate (5% of value) or comparative value method.

Controlled foreign company

A CFC is a foreign company controlled by NZ residents (50% or more); its income may be attributed to NZ residents under CFC rules.

Transfer pricing

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.

Non-resident withholding tax

NRWT applies to dividends (30%), interest (15%), and royalties (15%) paid to non-residents, subject to reduction under double tax agreements.

General anti-avoidance rule

The GAAR (s BG 1 and s GA 1) allows the Commissioner to counteract tax advantages from arrangements that defeat the intent and application of a tax law.

Record-keeping requirement

Businesses must retain records for at least 7 years, including electronic records; failure to keep records is an offence and may result in penalties.