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IR 295 September 2004

Taxes and duties


An introduction to New Zealands tax system

TAXES AND DUTIES

Introduction
This booklet gives you a brief introduction to the different kinds of taxes that Inland Revenue collects in New Zealand. Weve written it mainly for new residents and potential immigrants to New Zealand. We also explain family assistance which is nancial help available from Inland Revenue if you meet the criteria. In this booklet, when we refer to a New Zealand resident, we mean a New Zealand resident for tax purposes. On page 17 youll nd a list of other Inland Revenue publications. These will give you more detailed information if you want to know more about the topics covered in this booklet. You can get these publications from our website www.ird.govt.nz or order a copy by phoning our automated telephone service INFOexpressplease see page 18.

The information in this booklet is based on current tax laws at the time of printing.

TAXES AND DUTIES

Contents
Introduction Part 1 General information New Zealands tax system Tax residence Paying tax as a resident Becoming a non-resident Paying tax as a non-resident Double tax agreements IRD numbers Balance dates Part 2 Types of taxes and duties Income tax Goods and services tax Family assistance Accident compensation Resident withholding tax International tax rules Trusts Gift duty Child support For more help Forms and publications Inland Revenues website INFOexpress Call recording Privacy Act 1993 2 4 4 5 7 7 8 8 9 9 10 10 11 11 13 13 14 15 15 16 17 17 18 18 18 19

TAXES AND DUTIES

Part 1 General information


Please note that in this booklet, when we refer to a New Zealand resident, we mean a New Zealand resident for tax purposes.

New Zealands tax system


New Zealands laws require people and organisations to pay taxes. The New Zealand Government uses these taxes to pay for government expenditure. New Zealand residents must pay income tax in New Zealand on their worldwide income. If you are a New Zealand resident, most of the income you receive will be subject to tax. This includes income from personal effort, investments, benets and pensions, and overseas income. New Zealand also has a goods and services tax (GST), which is included in the price you pay for most goods and services. New Zealand does not have a capital gains tax, but prots from selling some assets can be taxable in some circumstances. There is no tax on cash or personal assets that you bring into New Zealand. Inland Revenue is the main government department that administers tax laws and collects tax payments. New Zealand Customs also collects some taxes and duties on imported goods. New Zealands tax system relies on peoples honesty in complying with the tax laws. It is important that you understand your tax obligations, to avoid being penalised.

TAXES AND DUTIES

Tax residence
The residence rules set out in the tax laws are different from the normal citizenship rules. Having New Zealand citizenship or permanent residence doesnt necessarily mean you are a resident for tax purposes. On the other hand, you could be a resident for tax purposes but not hold citizenship here. As an individual, you are a New Zealand resident for tax purposes if you meet any of these three conditions: You are in New Zealand for more than 183 days in any 12-month period. You have an enduring relationship with New Zealand (see page 6). You are away from New Zealand in the service of the New Zealand Government.

The 183-day rule


If you are in New Zealand for more than 183 days in any 12-month period, you are considered to be a New Zealand resident from the rst day you were here. The 183 days do not have to follow each other. For example, if you come to New Zealand for 10 days in April and then return for 20 days in September of the same year, that will be counted as 30 days. If you are in New Zealand for part of a day, the law counts this as a whole day. This means that the days you arrive or depart on are treated as days present in New Zealand.

An enduring relationship with New Zealand


The Income Tax Act says that anyone who has a permanent place of abode in New Zealand will be a New Zealand resident for tax purposes. Permanent place of abode does not only mean the building you live init covers all your links and ties with New Zealand. These may be social, physical, economic, nancial and personal links. Overall, the test could be described as whether you have an enduring relationship with New Zealand. To decide whether you have an enduring relationship with New Zealand, we look at your circumstances.

TAXES AND DUTIES

Do you have an enduring relationship with New Zealand? Criteria


Presence in New Zealand Accommodation Social ties

We consider
whether you are here continuously or from time-to-time whether you own, lease or have access to property in New Zealand where your immediate family lives, if you have children being educated here, if you belong to any New Zealand clubs, associations or organisations if you have bank accounts, credit cards, investments, life insurance or superannuation funds here if you run a business here, if you are employed, if you have employment to return to, the terms of any employment contract if you have vehicles, clothing, furniture or other property or possessions kept here permanently whether you intend to live in New Zealand or return overseas after a time whether you receive any welfare benets, pensions or other payments from New Zealand

Economic ties

Employment or business

Personal property

Intentions

Benets, pensions and other payments

This list is a guide onlyits necessary to consider your overall situation when working out whether youre a New Zealand tax resident.

TAXES AND DUTIES

Please note that even if you maintain ties (or even a physical home) in other countries, you can still be a New Zealand tax resident. As long as you have an enduring relationship with New Zealand you will always be a resident. This test overrides any rules about the number of days you are here. If you are a New Zealand tax resident, and also a tax resident of another country under that countrys tax laws, its possible that you could be taxed twice on the same income. To avoid this, New Zealand has double tax agreements with many other countries. These agreements are explained on page 8.

Paying tax as a resident


If you are a New Zealand resident you are taxed on your worldwide income. In your rst New Zealand tax return you must include your worldwide income from all sources from the date you arrived in New Zealand. You are normally allowed a credit for any tax paid overseas, up to the amount of New Zealand income tax payable on that overseas income. To claim a credit you will need to be able to produce records that show the overseas tax you have paid.

Note
In New Zealand the tax on each persons income is calculated separately. For example, there are no joint assessments for a husband and wife.

Becoming a non-resident
Remember that if you have an enduring relationship with New Zealand you will be a resident for tax purposes. However, if the ties and links described on page 6 suggest youre not a New Zealand tax resident, you can become a non-resident under the 325-day rule.

The 325-day rule


If you are away from New Zealand for more than 325 days in any 12-month period, and you do not have an enduring relationship with New Zealand, you will become a non-resident for tax purposes. The 325 days do not have to follow each other. Remember that if you are here for only part of a day it is counted as a whole day.

TAXES AND DUTIES

Paying tax as a non-resident


If you are a non-resident you are taxed here only on your income from New Zealand sources. Non-residents ll in an IR 3NR return, which is different from a residents tax return. If you are a non-resident with income from New Zealand, please make sure you let us know. This is so we can send you the right return form and tax you correctly. Normally, overseas countries will allow you to claim a credit for the tax that you pay on your income from New Zealand, limited to the overseas tax payable on the New Zealand income.

Double tax agreements


To avoid double taxation if a person is a tax resident of two different countries, New Zealand has negotiated double tax agreements (DTAs) with many other countries. These DTAs establish rules to decide which country has the right to tax specic types of income. Most DTAs contain a tie-breaker clause to establish which country has prior claim when settling competing tax claims.

These countries have double tax agreements with New Zealand


Australia Belgium Canada China Denmark Fiji Finland France Germany India Indonesia Ireland Italy Japan Malaysia Netherlands Norway Philippines Russian Federation Republic of Korea Singapore South Africa Sweden Switzerland Taiwan Thailand United Arab Emirates United Kingdom United States of America

To get more details about any of these, phone us on 0800 227 774 if you are a salary or wage earner, or 0800 377 774 if you are in business.

TAXES AND DUTIES

Example

IRD numbers
You will need to ll in an IRD number application individuals (IR 595) form, or if you are intending to start a business, an IRD number application nonindividuals (IR 596) form if you are required to pay tax in New Zealand. If you are going to claim family assistance (see page 12) you will also need to complete an IRD number application children (IR 594) for all the children you are applying for. To get any of these application forms please phone us on 0800 227 774 (for salary and wage earners, and family assistance applications) or 0800 377 774 (for self-employed or people in business). Alternatively, you can also go to our website www.ird.govt.nz When applying for an IRD number you will also have to show us some identication, eg a birth certicate or current passport. Once you have your IRD number please have it handy whenever you call Inland Revenue.

Balance dates
New Zealands tax year runs from 1 April to 31 March. Some individuals and all self-employed people and businesses have to ll in a tax return after 31 March each year, to declare all their income and tax paid. Some self-employed people and businesses have a balance date other than 31 March, for example, some farmers have a 30 June balance date. Depending on the circumstances, we may give approval for other self-employed people and businesses to have a different balance date.

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Part 2 Types of taxes and duties


Income tax
In New Zealand, these types of income are all subject to income tax: salary and wages business and self-employed income most social security benets income from investments rental income prot from selling capital assets, in some circumstances (this does not usually apply to personal assets sold) income that a New Zealand resident earns from overseas. At the time of printing this booklet, the New Zealand income tax rates are:

Income
up to $38,000 $38,001 to $60,000 $60,001 and over

Taxed at
19.5% 33% 39%

However, there are some rebates that reduce the amount of tax you may have to pay if your income is mainly from salary, wages, self-employment or a social security benet, and your total income is below $38,000. If your income is from salary, wages or a social security benet, your tax will be deducted under the pay-as-you-earn (PAYE) system. This means the pay you get in your hand has already had tax deducted. If your employer provides non-cash benets as part of your employment package, they will pay fringe benet tax on these benets. You will not be taxed on these benets.

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You may earn income that doesnt have tax deducted before you receive it (such as income from running your own business). In this situation (other than your rst year in business) youll generally have to pay your tax in three instalments during the year. This is called provisional tax. When you le your tax return at the end of the nancial year, the provisional tax youve already paid will be offset against the end-of-year tax amount you owe.

Goods and services tax


Goods and services tax (GST) is New Zealands main type of tax apart from income tax. It is an indirect tax, which businesses (including retailers) charge as part of the cost of goods and services that they supply. When a business buys goods or services from its suppliers, it can claim a credit for the GST the suppliers charge on these purchases. However, enduser consumers (such as salary and wage earners) cannot claim a deduction for GST in this way. The effect of this is that the nal consumer of any product or service pays 12.5% GST on its cost. GST is charged on virtually all goods and services supplied in New Zealand, except for rental of residential property, nancial services such as mortgages, loans and investments, and the sale of a business that is capable of being a going concern.

Family assistance
Family assistance is nancial help for working families. How much you can receive depends on: how many children 18 years or under are living at home with you how much money you and your partner make from your jobs where your income comes from. Family assistance has four parts: Family support (FS) Parental tax credit (PTC) Child tax credit (CTC) Family tax credit (FTC)

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TAXES AND DUTIES

Family support is paid by Inland Revenue to low to middle-income working families. Every fortnight, the money is paid straight into your bank account. Each familys circumstances are different, so the amount you receive may be different from the amount other families receive. Parental tax credit is paid for up to eight weeks to most working families when a child is born. Child tax credit is a top-up of family support for working parents. Family tax credit is paid to families to bring their income up to at least $18,368 a year ($286 after tax each week), where at least one parent is working for salary or wages. The table below is a guide to what you can expect to receive, depending on your total family income and the number of children in your care.
Fortnightly payments Family income each week before tax $ 182 183 to 221 222 to 259 260 to 298 299 to 336 337 to 391 392 to 413 414 to 451 452 to 490 491 to 519 520 to 548 549 to 576 577 to 605 606 to 634 635 to 663 664 to 692 693 to 721 722 to 750 751 to 778 779 to 807 808 to 836 837 to 865 866 to 894 895 to 923 924 to 951 952 to 980 Family income each year before tax $ 9,500 9,501 to 11,500 11,501 to 13,500 13,501 to 15,500 15,501 to 17,500 17,501 to 20,356 20,357 to 21,500 21,501 to 23,500 23,501 to 25,500 25,501 to 27,000 27,001 to 28,500 28,501 to 30,000 30,001 to 31,500 31,501 to 33,000 33,001 to 34,500 34,501 to 36,000 36,001 to 37,500 37,501 to 39,000 39,001 to 40,500 40,501 to 42,000 42,001 to 43,500 43,501 to 45,000 45,001 to 46,500 46,501 to 48,000 48,001 to 49,500 49,501 to 51,000 1
FS CTC PTC

2 $ $ $ 60 60 60 60 60 60 60 60 60 60 60 60 60 60 60 60 53 35 18 1 $ $

Number of children 3 4 $ $ $ $ $ $

5 $ $ $

6
FS CTC PTC

FS CTC PTC FS CTC PTC

FS CTC PTC FS CTC PTC

$ 94 94 94 94 94 94 86 72 58 48 32 15

$ 30 30 30 30 30 30 30 30 30 30 30 30 28 11

300 158 300 158 300 158 300 158 300 158 300 158 300 150 300 136 300 122 300 112 300 300 300 300 293 276 259 241 224 207 189 172 155 137 120 103 96 79 62 45 27 10

300 222 300 222 300 222 300 222 300 222 300 222 300 214 300 200 300 186 300 176 300 160 300 143 300 126 300 109 300 300 300 300 300 300 283 266 249 231 214 197 91 74 57 39 22 5

90 300 286 120 300 350 150 300 414 180 300 90 300 286 120 300 350 150 300 414 180 300 90 300 286 120 300 350 150 300 414 180 300 90 300 286 120 300 350 150 300 414 180 300 90 300 286 120 300 350 150 300 414 180 300 90 300 286 120 300 350 150 300 414 180 300 90 300 278 120 300 342 150 300 406 180 300 90 300 264 120 300 328 150 300 392 180 300 90 300 250 120 300 314 150 300 378 180 300 90 300 240 120 300 304 150 300 368 180 300 90 300 224 120 300 288 150 300 352 180 300 90 300 207 120 300 271 150 300 335 180 300 90 300 190 120 300 254 150 300 318 180 300 90 300 173 120 300 237 150 300 301 180 300 90 300 155 120 300 219 150 300 283 180 300 90 300 138 120 300 202 150 300 266 180 300 90 300 121 120 300 185 150 300 249 180 300 90 300 103 120 300 167 150 300 231 180 300 90 300 90 300 77 300 60 300 43 300 25 300 8 300 291 86 120 300 150 150 300 214 180 300 69 120 300 133 150 300 197 180 300 51 120 300 115 150 300 179 180 300 34 120 300 17 120 300 119 300 102 300 85 300 98 150 300 162 180 300 81 150 300 145 180 300 63 150 300 127 180 300 46 150 300 110 180 300 29 150 300 93 180 300

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Accident compensation
New Zealand has a comprehensive accident insurance scheme which covers the costs of all work and non-work-related accidents. The Accident Compensation Corporation (ACC) administers this scheme. Premiums for cover are paid by employers and self-employed people directly to ACC. Inland Revenue collects employees premiums on behalf of ACC, as part of the PAYE tax system.

Resident withholding tax


If you receive interest from any person or organisation, resident withholding tax (RWT) is deducted before it is credited to you. This might be interest from nancial institutions (banks, nance companies, building societies or credit unions) or even interest on a credit balance with Inland Revenue.

Rates of RWT
The rate at which RWT is deducted from your interest depends on: the date on which the interest is paid or credited whether or not you have given your IRD number to the person or organisation who is paying you interest your income level.

Which rate should I choose?


If you have given your nancial institution your IRD number, they will deduct RWT at 19.5%. However, if your total income is more than $38,000, RWT should be deducted at a higher rate. The following chart lists the RWT rates:

Total income
up to $38,000 $38,001 to $60,000 $60,001 and over

RWT rate
19.5% 33% 39%

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TAXES AND DUTIES

You can elect to have your interest deducted at the correct rate or a higher rate to avoid an end-of-year tax bill. You should elect either 33% or 39% if your gross income is over $38,000.

Note
If a nancial institution does not have a clients IRD number, it will deduct RWT at the no-declaration rate of 39%.

How do I make an election?


To make an RWT rate election you can either: contact your bank or nancial institution and tell them which rate you prefer to be on, or complete an RWT election form and give one to each bank or nancial institution you deal with. You can view a copy of our Resident withholding tax (RWT) election (IR 456) form on our website or order one by phoning INFOexpresssee page 18. Have your IRD number handy when you call and quote the form number IR 456. The rate you choose will apply once your bank or nancial institution has processed this information.

International tax rules


New Zealand residents must pay income tax in New Zealand on their worldwide income. In addition, a New Zealand resident who has signicant investments overseas must calculate the income from those investments according to New Zealand tax rules. These calculation rules do not apply to ordinary overseas bank accounts that you hold. To declare the income from these bank accounts, you simply convert the interest to New Zealand dollars (using the exchange rate for the date on which the interest was credited) and include it in your tax return. For more involved or substantial overseas investments (including interests in superannuation schemes), the calculations can be quite complicated. To nd out more about them, contact your tax advisor or agent.

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Trusts
If you are a settlor, trustee or beneciary of a trust outside New Zealand, there are some trust tax rules you may need to know about. See our booklet Trusts and estates income tax rules (IR 288) for more information.

Gift duty
A New Zealand resident who gives gifts with a total value of $27,000 or more in any 12-month period must pay gift duty on those gifts. The following table gives the rates of gift duty:

Value of gift
$0 to $27,000 $27,001 to $36,000 $36,001 to $54,000 $54,001 to $72,000 over $72,000

Rate of duty
Nil 5% of amount over $27,000 $450 plus 10% of amount over $36,000 $2,250 plus 20% of amount over $54,000 $5,850 plus 25% of amount over $72,000

Anyone who gives gifts worth over $12,000 in any 12-month period has to le a Gift statement (IR 196) with Inland Revenue, even if there is no duty payable on these gifts. See our booklet Gift duty (IR 194) for more information. You can get these from our website or order copies by phoning INFOexpresssee page 18.

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Child support
Child support is money paid by parents not living with their children to help nancially support those children, when: a couple who have children split up, or two people have children and are not living together. Child support is not a tax, it is a payment administered by Inland Revenue. Inland Revenue Child Support assesses the amount the paying parent needs to pay and collects this money. It is then passed on to the person looking after the children to help with the costs of bringing up the children, or to the government where the carer is receiving a sole parent rate of benet, to help offset the cost of the benet. Some parents pay nancial support directly to the other parent without the money passing through Inland Revenue Child Support. This can happen when the person caring for the children is not receiving a sole parent rate of benet. For more information about child support, please call 0800 221 221.

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For more help


Forms and publications
These publications have more information on topics covered in this booklet: Conversion sheet of overseas income to New Zealand currency (IR 270) Family assistance guide (IR 200) Family assistance for families on benets (IR 203) Family assistance for working families (IR 204) First-time employers guide (IR 333) Gift duty (IR 194) GST do you need to register? (IR 365) GST guide (IR 375) How to get a student loan and how to pay one back (SL 5) IRD number application children (IR 594) IRD number application individual (IR 595) IRD number application non-individual (IR 596) Provisional tax (IR 289) Rental income (IR 264) Resident withholding tax on dividends (IR 284) RWT on interest payers guide (IR 283) Self-employed or an employee? (IR 336) Smart business (IR 320) Smart business quick reference summary sheets: Employer obligations (IR 322) Record keeping (IR 323) GST (IR 324) Income tax (IR 325) Tax code declaration (IR 330) Taxpayer obligations, interest and penalties (IR 240) Trusts and estates income tax rules (IR 288) Visitors tax guide (IR 294)

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Inland Revenues website


Visit our website at www.ird.govt.nz for detailed information about tax and social policy, access to our booklets, returns, forms, newsletters, public rulings and a variety of interactive online services. We regularly add new services to our site. You can register to get updates about these by clicking on Whats new on the homepage.

INFOexpress
INFOexpress is our automated telephone service. These are some of the things you can do by phoning INFOexpress: order Inland Revenue forms and booklets get tax payment information get updates on your account balances (income tax, GST, employer accounts for PAYE, child support, SSCWT, FBT and student loans) request or change a personal identication number (PIN). All you need to use INFOexpress is a touch tone phone and your IRD number. Its also helpful if you know the number of any forms or booklets you are ordering. For personal information, such as account balances, youll also need an INFOexpress PIN. You can get a PIN by phoning 0800 257 777 and following the instructions given. INFOexpress is available between 6 am and 12 midnight, seven days a week. You can call these numbers for: Forms and stationery Taxpacks All other services 0800 257 773 0800 257 772 0800 257 777

Call recording
As part of our commitment to providing the best possible service to our customers, Inland Revenue records all telephone calls received through our call centres. Please visit our website at www.ird.govt.nz or contact us on 0800 377 774 for further information about our call recording policy and how you can access your recorded information.

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Privacy Act 1993


Meeting your tax obligations involves giving accurate information to Inland Revenue. We ask you for information so we can assess your liabilities and entitlements under the Acts we administer. You must, by law, give us this information. Penalties may apply if you do not. We may exchange information about you with Work and Income, the Department for Courts, the Ministry of Education, the Accident Compensation Corporation, or their contracted agencies. Information may be provided to overseas countries with which New Zealand has an information supply agreement. Inland Revenue also has an agreement to supply information to Statistics New Zealand for statistical purposes only. You may ask to see the personal information we hold about you by phoning us on 0800 377 774. Unless we have a lawful reason for withholding the information, we will show it to you and correct any errors.