CPA New Zealand Taxation key terms

The amount left after a taxpayer's allowable deductions are subtracted from assessable income for the year. Income tax is calculated on this figure using the relevant rates or thresholds.

All gross income a taxpayer derives in an income year that the Income Tax Act 2007 includes as taxable, before any deductions. Includes salary, business profits, rents, dividends and certain capital amounts treated as income.

An expense or loss that meets the statutory nexus tests and is subtracted from assessable income. It must generally be incurred in deriving assessable income or in carrying on a business for that purpose.

The core deductibility test in the Income Tax Act 2007: an expense is deductible if incurred in deriving assessable income or in carrying on a business for the purpose of deriving it. Specific limitations then apply.

The statutory rule that denies a deduction for expenditure or loss of a capital nature, or that is incurred in deriving exempt income or is otherwise disallowed. It overrides the general permission.

The restriction preventing deductions for capital expenditure, because capital costs are generally not deductible as incurred. Relief comes through depreciation, the capital gains exclusion from income, or specific provisions.

Amounts that are income according to common law principles, judged by whether they are periodic, recurring, and earned from business, employment or property. This concept supplements the specific statutory income categories.

A person's status determining whether New Zealand taxes their worldwide income. Tests include permanent place of abode and presence in New Zealand for more than 183 days in any 12-month period.

A status for qualifying new migrants and returning New Zealanders that temporarily exempts most foreign-source income from New Zealand tax. It applies for a limited period, generally around four years.

The principles determining whether income has a New Zealand source, which matters for taxing non-residents and for double tax agreements. Source depends on where the activity, property or payer is located.

A broad-based indirect tax of 15 percent on supplies of goods and services in New Zealand, and on imports. Registered businesses collect it and claim input tax credits on their own purchases.

GST charged by a registered supplier on taxable supplies made to customers. The supplier returns output tax to Inland Revenue, net of any input tax credits claimed in the same period.

GST paid by a registered person on goods and services acquired for making taxable supplies. It is credited against output tax, subject to apportionment and specific rules for exempt or private use.

A supply of goods or services made in New Zealand by a registered person in the course or furtherance of a taxable activity. Excludes exempt supplies and supplies outside the GST net.

The turnover level at which a person must register for GST, currently NZD 60,000 of taxable supplies in a 12-month period. Registration can also be voluntary below this level.

A taxable supply taxed at 0 percent, such as certain exports and land transactions between GST-registered parties. The supplier can still claim input tax credits on related purchases.

A supply outside the GST net, such as many financial services and residential rents. No output tax is charged and input tax relating to it generally cannot be claimed.

Instalments of income tax paid during the year by taxpayers whose residual income tax exceeds the threshold. Payments are based on prior-year income or a taxpayer's own estimate.

The income tax payable for a year after subtracting credits and provisional tax paid, used to test provisional tax obligations. It determines whether a taxpayer must pay provisional tax and interest.

Interest Inland Revenue charges or pays on underpayments or overpayments of tax, including provisional tax shortfalls. Rates are set periodically and can apply from the relevant instalment date.

The balance of income tax payable for a year after provisional tax and credits are applied, due on the terminal tax date. It contrasts with the instalments paid during the year.

The system requiring employers to withhold income tax and ACC levies from salary and wages and remit them to Inland Revenue. Withholding is based on tax codes supplied by employees.

A tax on non-cash benefits employers provide to employees, such as motor vehicles and low-interest loans. It is paid by the employer and calculated on the value of the benefit.

Tax deducted at source by a payer on certain payments and remitted to Inland Revenue. Examples include resident withholding tax on interest and dividends, and non-resident withholding tax.

Tax deducted at source from interest and dividends paid to New Zealand residents. The deduction is a credit against the recipient's final income tax liability.

Tax deducted from certain payments, such as interest, dividends and royalties, made to non-residents. Rates may be reduced by an applicable double tax agreement.

A credit attached to a dividend representing company tax already paid on the underlying profits. It prevents double taxation by allowing resident shareholders to offset the credit against their tax.

A distribution of money or property by a company to a shareholder, generally treated as income. The definition captures many disguised distributions, including certain loans and transfers of value.

A company that elects to be transparent for tax, so owners are taxed on company income and can use losses. Eligibility and loss limitation rules restrict this treatment.

An association of persons carrying on a business jointly with a view to profit. For tax, each partner is taxed on their share of partnership income, and the partnership files an information return.

An arrangement where trustees hold property for beneficiaries. Trusts are taxed as separate entities, and distributions to beneficiaries are taxed under specific distribution and beneficiary income rules.

Income derived by a trust that is not distributed as beneficiary income and is taxed to the trustees. It is taxed at the trustee rate, and distributions can carry imputation credits.

Trust income allocated to a beneficiary in the year it is derived or shortly after, taxed at the beneficiary's marginal rates. The timing rules affect whether income is trustee or beneficiary income.

The systematic allocation of the cost of depreciable property over its useful life, claimed as a deduction. Rates and methods follow Inland Revenue rules and can be adjusted for business use.

Property that has a limited useful life and is used in deriving assessable income, such as plant and equipment. It qualifies for depreciation deductions under the relevant rules.

Goods held for sale or manufacture in a business, valued at cost or net realisable value at year end. Changes in closing and opening stock adjust the gross profit calculation.

New Zealand does not have a general capital gains tax. Some gains are nonetheless taxable under specific provisions, such as the bright-line test and land dealing rules.

A rule taxing gains on residential land sold within a specified period after acquisition, subject to exclusions such as the main home. The period has been changed by successive governments.

A treaty between New Zealand and another country allocating taxing rights and relieving double taxation. It can reduce withholding tax rates and affects source and residence conflicts.

A formal ruling from the Commissioner of Inland Revenue on how tax law applies to a specific arrangement. It binds the Commissioner for the taxpayer and period covered.

An arrangement entered into with a dominant purpose of defeating the intent of tax law, which the Commissioner can counteract. It differs from acceptable tax planning and from evasion.

The illegal non-payment or underpayment of tax through deliberate concealment or false statements. It is a criminal offence, unlike avoidance which is counteracted under civil provisions.

A civil penalty imposed for taking an incorrect tax position, graded by whether the taxpayer failed to take reasonable care or acted abusively. It is calculated as a percentage of the tax shortfall.

The statutory officer who administers the tax Acts, including assessment, collection and enforcement. The Commissioner can issue rulings, investigate, and exercise discretion in defined situations.