Taxation – Income tax
(a) Scope of income tax
New Zealand income tax is imposed on the world-wide income of New Zealand residents. Income of non-residents is also subject to income tax to the extent that income has a New Zealand source (although the liability may be reduced by operation of an applicable double tax agreement (DTA)). “Income” includes most receipts on revenue account as well as some gains that would be classified as capital gains in other jurisdictions.
(b) Income tax rates
The graduated tax rates for individuals for income (including personal services income) are as follows:
- 10.5% for income up to NZ$14,000 per annum;
- 17.5% for income between NZ$14,001 and NZ$48,000 per annum;
- 30% for income between NZ$48,001 and NZ$70,000 per annum; and
- 33% for income in excess of NZ$70,000 per annum.
All forms of employment income are taxable on a gross basis. No deductions are allowed for expenditure incurred in deriving employment income. Employers withhold tax from salary and wage payments under the Pay As You Earn (PAYE) system. In addition, as of 1 April 2017 employers also have the ability to use the PAYE rules to satisfy an employee’s tax liability in relation to benefits received under employee share schemes.
Self-employed individuals pay tax at the same rates, but on a net basis – they are allowed deductions for expenditure incurred in deriving their income.
Companies (including New Zealand subsidiaries and branches of foreign companies) and other business taxpayers are taxed on their net income after allowable deductions. The company tax rate is 28%.
Trustees are taxed on their net income at 33%. However, net trust income treated as beneficiary income is taxed at the beneficiary’s marginal tax rate. New Zealand’s trust tax rules are primarily based on the residence of the settlor:
- non-New Zealand sourced income of New Zealand resident trustees of certain trusts with no New Zealand resident settlor is exempt (provided certain registration and ongoing disclosure requirements are met); and
- in some situations, New Zealand resident settlors of trusts can be liable for tax on income derived by non-resident trustees.
(c) Income tax residence
An individual is resident in New Zealand for income tax purposes if:
- they have a permanent place of abode in New Zealand, even if they also have a permanent place of abode overseas; or
- they spend more than 183 days in aggregate in any 12 month period in New Zealand, regardless of whether or not they have a permanent place of abode in New Zealand.
- Resident tiebreaker provisions also apply for the purpose of DTAs.
A company is resident in New Zealand for income tax purposes if:
- it is incorporated in New Zealand;
- its head office is in New Zealand;
- its centre of management is in New Zealand; or
- New Zealand is the place from which the directors exercise control of the company (whether or not exclusively).
If a company is resident in New Zealand, and also resident under the domestic laws of the country with which New Zealand has a DTA (discussed further below), the “tiebreaker” provision in that agreement will determine where the company is considered resident for the purposes of applying the DTA.
Corporate dual residence is generally undesirable under New Zealand domestic tax rules. For example, a dual resident company that is deemed non-resident in New Zealand for the purposes of a DTA, cannot operate an imputation credit account.
(d) Deductions Taxpayers
carrying on a business are generally entitled to deductions against assessable income for operating expenditure and interest incurred in the business, subject to thin capitalisation and transfer-pricing constraints for foreign-owned businesses (discussed further below). Business taxpayers are also generally entitled to amortising depreciation deductions based on the cost of capital assets used in the business.
(e) Net Losses
Net losses can generally be carried forward by non-corporate taxpayers without restriction. Under current rules, companies must maintain minimum 49% shareholder continuity from the tax year in which losses are incurred to the future year in which they are to be offset against net income. However, it has been announced that even if such continuity is not maintained, carry forward of losses incurred from 1 April 2020 will be permitted if the company meets a “same or similar business” test. Legislation introducing this new regime is awaited.