New Zealand Taxation
This section covers New Zealand Taxation for the Taxation segment. The exam tests the Income Tax Act 2007, the GST Act 1985 and the Tax Administration Act 1994, with emphasis on residence and source, assessable income, deductions, entity taxation, GST and core compliance obligations.
Residence and source
New Zealand tax residents are taxed on worldwide income; non-residents are taxed only on New Zealand-sourced income. A person becomes resident by being physically present for 183 days in any 12-month period or by having a permanent place of abode in New Zealand. The transitional resident exemption can exclude most foreign-source income for four years, but it does not cover employment income or New Zealand-source income. Source rules look to where the income-producing activity, contract or asset is situated.
Income and deductions
Assessable income includes salary and wages, business profits, rents, interest, dividends and gains caught by specific provisions. The general deduction permission in s DA 1 allows expenditure incurred in deriving assessable income or in carrying on a business for that purpose. Section DA 2 denies capital, private and domestic expenditure. Specific regimes govern depreciation, trading stock, repairs, bad debts, accrual rules, entertainment (generally 50% deductible) and legal fees.
GST and compliance
GST is charged at 15% on taxable supplies. Registration is compulsory once taxable turnover exceeds $60,000 in any 12-month period. Registered persons claim input tax on business purchases and account for output tax; exports and going concerns may be zero-rated. Provisional tax, FBT, imputation and shortfall penalties form part of the compliance framework.
Worked example
Maria is a New Zealand tax resident. She earns a salary of $120,000, receives $30,000 rent and $5,000 interest from an Australian bank. Rental expenses are $12,000, including $3,000 to replace the roof. The roof replacement is capital, so only $9,000 is deductible. As a resident, Maria is taxed on the Australian interest. Taxable income is $120,000 + ($30,000 − $9,000) + $5,000 = $146,000. Tax: $15,600 × 10.5% = $1,638.00; $37,900 × 17.5% = $6,632.50; $24,600 × 30% = $7,380.00; $67,900 × 33% = $22,407.00. Total tax = $38,057.50.
Traps that cost marks
Do not confuse residence with source. Do not deduct capital improvements as repairs. Remember that residential rental losses are generally ring-fenced. GST does not apply to salaries or exempt residential rents. Watch the $60,000 GST registration threshold and provisional tax triggers.
Key points
- Residents are taxed on worldwide income; non-residents on New Zealand-source income.
- Residence: 183 days in 12 months or a permanent place of abode.
- Deductions require a nexus with assessable income and are barred for capital, private or domestic items.
- GST is 15%; registration is compulsory above $60,000 of taxable turnover.
- Company tax is 28%; individual rates are 10.5%, 17.5%, 30%, 33% and 39%.
- Residential rental losses are ring-fenced.