Taxation in New Zealand is collected at a national level by the Inland Revenue Department (IRD) on behalf of the Government of New Zealand. Public finance is a field of economics concerned with paying for collective or governmental activities and with the administration and design of those activities The field of finance refers to the concepts of Time, Money and Risk and how they are interrelated Payroll tax generally refers to two kinds of taxes: Taxes which Employers are required to withhold from Employees Pay, also known as Withholding A capital gains tax (abbreviated CGT) is a Tax charged on Capital gains the profit realized on the sale of a non-inventory Asset that was purchased Stamp duty is a form of Tax that is levied on documents Historically a physical stamp (a Tax stamp) had to be attached to or impressed upon the document to denote Land value taxation (LVT (or site value taxation) is an Ad valorem tax where only the value of land itself is taxed A sales tax is a Consumption tax charged at the Point of purchase for certain goods and services Value added tax ( VAT) or goods and services tax ( GST) is a consumption Tax levied on value added. A flat tax (short for flat rate tax is a Tax system with a constant tax rate The tax tariff and trade laws of a political region State or Trade bloc determine which forms of consumption and production tend to be encouraged A tax haven is a place where certain Taxes are levied at a low rate or not at all In Economics, tax incidence is the analysis of the effect of a particular Tax on the distribution of economic welfare. In a Tax system and in Economics, the tax rate describes the burden Ratio (usually expressed as a Percentage) at which a business or person is A proportional tax is a Tax imposed so that the Tax rate is fixed as the amount subject to taxation increases A progressive tax is a Tax imposed so that the Tax rate increases as the amount subject to taxation increases A regressive tax is a Tax imposed in such a manner that the Tax rate decreases as the amount subject to taxation increases Tax advantage refers to the economic bonus which applies to certain accounts or Investments that are by Statute, tax-reduced tax-deferred or tax-free Personal income taxes See also Income tax in Australia Only the federal government imposes income taxes on individuals and this is the most significant source of Taxation in the British Virgin Islands is relatively simple by comparative standards photocopies of all of the tax laws of the British Virgin Islands would together amount to about 200 The level of Taxation in Canada is average among Organisation for Economic Co-operation and Development (OECD countries Taxes provide the most important revenue source for the Government of the People's Republic of China. See Government of Colombia for a wider perspective of Colombian government See Government of France for a wider perspective of French government Taxes in Germany —being a Federal Republic —are levied by the federation ( Bund) the States ( Länder) as well as the HK Inland Revenue Ordinance Cap112 is one of Hong Kong's Ordinances Taxes in India are levied by the Central Government and the State Governments This article ls with Taxation in Indonesia or pajak. Definitions "Pajak" in Indonesian for Tax and taxes whereas " Perpajakan The system of Taxation in Ireland is broadly similar to the system of Taxation in the United Kingdom. The Netherlands has a rich history dealing with taxation predating the Romanic period. The Income tax in Peru is collected by the Superintendencia Nacional de Administración Tributaria, best known as SUNAT. The Russian Tax Code is the primary tax law for the Russian Federation. Individual income tax in Singapore forms part of two main sources of Income tax, the other being Corporate taxes on companies In Tanzania the Income Tax Act 2004 came into effect in July 2004 Taxation in the United Kingdom may involve payments to a minimum of two different levels of government The central government ( Her Majesty's Revenue and Customs) Taxation in the United States is a complex system which may involve payment to at least four different levels of government and many methods of taxation Value added tax ( VAT) or goods and services tax ( GST) is a consumption Tax levied on value added. Comparison of Tax Rates around the world is a difficult and somewhat subjective enterprise This table lists countries by total 2005 Tax revenues (federal state and local as a percentage of GDP (Gross Domestic Product Economic policy refers to the actions that Governments take in the economic field. Monetary policy is the process by which the Government, Central bank, or monetary authority of a country controls (i the Supply of Money, A central bank, reserve bank, or monetary authority is the entity responsible for the Monetary policy of a country or of a group of member states In Economics, money supply, or money stock, is the total amount of money available in an Economy at a particular point in time The gold standard is a monetary system in which a region's common media of exchange are paper notes that are normally freely convertible into pre-set fixed quantities of Gold Fiscal policy, taking the scope of Budgetary policy, refers to government policy that attempts to influence the direction of the economy through changes in government taxes Government spending or government expenditure is classified by economists into three main types A budget deficit occurs when an Entity (often a Government) spends more Money than it takes in Government debt (also known as public debt or national debt) is Money (or credit) owed by any level of government either Central government Trade is the willing exchange of goods, services, or both Trade is also called Commerce. For other uses of this word see Tariff (disambiguation. A tariff is a tax imposed on goods when they are moved across a political boundary A trade pact is a wide ranging Tax tariff and trade pact that often includes Investment guarantees The field of finance refers to the concepts of Time, Money and Risk and how they are interrelated In Economics, a financial market is a mechanism that allows people to easily buy and sell ( Trade) financial Securities (such as stocks and bonds There are two basic financial market participant categories Investor vs Corporate finance is an area of Finance dealing with the financial decisions Corporations make and the tools and analysis used to make these decisions Personal finance is the application of the principles of Finance to the monetary decisions of an individual or family unit Public finance is a field of economics concerned with paying for collective or governmental activities and with the administration and design of those activities Financial regulations are a form of Regulation or supervision which subjects Financial institutions to certain requirements restrictions and guidelines aiming to A banker or bank is a Financial institution whose primary activity is to act as a payment agent for customers and to borrow and lend money Fractional-reserve banking is the banking practice in which Banks keep only a fraction of the value of their Bank notes and demand deposits in reserve Full-reserve banking is the Banking practice in which the full amount of each depositor's funds are available in reserve at the bank when each depositor Free banking is a theory of Banking in which commercial banks and market forces control the provision of banking services Islamic banking refers to a system of banking or banking activity that is consistent with Islamic law ( Sharia) principles and guided by Islamic economics The Inland Revenue Department or simply Inland Revenue ( Maori: Te Tari Taake) is the New Zealand government department responsible for the The politics of New Zealand takes place in a framework of a parliamentary representative democratic Monarchy. National taxes are levied on personal and business income, as well as on the supply of goods and services. There is no capital gains tax, although certain "gains" such as profits on the sale of patent rights are deemed to be income. Local property taxes (rates) are managed and collected by councils. Rates are a type of taxation system in the United Kingdom, and in places with systems deriving from the British one used to fund Local government. Some goods and services carry a specific tax, referred to as an excise or a duty eg Alcohol excise or gaming duty. Excise or Excise tax (sometimes called an excise duty) is a type of Tax charged on goods produced within the country (as opposed to Customs duties These are collected by a range of government agencies such as the New Zealand Customs Service. The Customs Service (In Māori, Te Mana Arai o Aotearoa) is a state sector organisation of New Zealand whose
New Zealand went through a major programme of tax reform in the 1980s. Tax reform is the process of changing the way Taxes are collected or managed by the Government. The 1980s was the decade spanning from January 1 1980 to December 31 1989. The top marginal rate of income tax was reduced from 66% to 33% (since increased to 39% in 2001) and corporate income tax rate from 48% to 33% (reduced to 30% in 2008). Year 2001 ( MMI) was a Common year starting on Monday according to the Gregorian calendar. 2008 ( MMVIII) is the current year in accordance with the Gregorian calendar, a Leap year that started on Tuesday of the Common Goods and services tax was introduced, initially at a rate of 10% (now 12. Value added tax ( VAT) or goods and services tax ( GST) is a consumption Tax levied on value added. 5%). An OECD report in 2001 described the New Zealand tax system as one of the most neutral and efficient within its membership. [1]
Tax reform continues in New Zealand with key issues being:
- business taxes and the effect on productivity and competitiveness of NZ companies[2]
- differences in the treatment of various types of investment income[3]
- international tax rules [4]
Contents |
Individual income tax
New Zealand residents are liable for tax on their worldwide taxable income. Taxable income is the portion of Income that is the subject of taxation according to the laws that determine what is income and the taxation rate for that income In 2005-06, 43% of the New Zealand Government's core revenue ($22. 9bn) came from individuals' income taxes. [5]
Types of taxable income
- salary and wages
- business and self-employed income
- income from investments (interest, dividends etc. A salary is a form of periodic payment from an Employer to an Employee, which may be specified in an Employment contract. A wage is a compensation workers receive in exchange for their labor. Self-employment is the individual pursuit of Capitalism. To be self-employed an individual is normally highly skilled in a trade or has a niche product or service Investment or investing is a term with several closely-related meanings in Business management, Finance and Economics, related to saving Interest is a fee paid on borrowed capital Assets lent include Money, Shares, Consumer goods through Hire purchase, major assets Dividends are payments made by a Corporation to its Shareholder members . . )
- rental income
- overseas income (including income from an overseas pension)
Tax rates
Income tax varies dependent on income levels in any specific tax year (personal tax years run from 1 April to 31 March). A pension is a steady income given to a person upon Retirement, typically in the form of a guaranteed annuity. Events 527 - Byzantine Emperor Justin I names his nephew Justinian I as co-ruler and successor to the throne Events 307 - After divorcing his wife Minervina, Constantine marries Fausta, the daughter of the retired Roman Emperor
| Income | Tax Rate |
|---|---|
| $0 - $38,000 | 19. 5% |
| $38,001 - $60,000 | 33% |
| Over $60,000 | 39% |
| No declaration form (IR330) | 49% |
Rates are for the tax year 1 April 2006 to 31 March 2007. Events 527 - Byzantine Emperor Justin I names his nephew Justinian I as co-ruler and successor to the throne Year 2006 ( MMVI) was a Common year starting on Sunday of the Gregorian calendar. Events 307 - After divorcing his wife Minervina, Constantine marries Fausta, the daughter of the retired Roman Emperor Year 2007 ( MMVII) was a Common year starting on Monday of the Gregorian calendar in the 21st century. [6]
The New Zealand government has announced a change in tax rates and thresholds to take effect from 1 October 2008.
In New Zealand, the income is taxed by the amount that falls within each tax bracket. In other words, if a person earns $60,000, they will only pay 33% on the amount that falls between $38,001 and $60,000 rather than paying this on the full $60,000.
Tax deducted at source
In most cases employers deduct the relevant amount of income tax from salary and wages prior to these being paid to the individual. This system, known as Pay-as-you-earn, or PAYE, was introduced in 1958, prior to which employees paid tax annually. For other uses see Paye (disambiguation PAYE ( Pay As You-Earn) is an amount collected by Employers on behalf of the government Year 1958 ( MCMLVIII) was a Common year starting on Wednesday (link will display full calendar of the Gregorian calendar.
In addition, Banks and other financial institutions deduct the relevant amount of income tax on interest and dividends as these are earned. A banker or bank is a Financial institution whose primary activity is to act as a payment agent for customers and to borrow and lend money In Financial economics, a financial institution acts as an agent that provides Financial services for its clients or members Interest is a fee paid on borrowed capital Assets lent include Money, Shares, Consumer goods through Hire purchase, major assets Dividends are payments made by a Corporation to its Shareholder members This is known as Residents Withholding Tax.
At the end of each tax year individuals who may not have paid the correct amount of income tax are required to submit a personal tax summary, to allow the IRD to calculate any under or overpayment of tax made during the year.
Double taxation agreements
Where an individual is tax resident in more than one country they may be liable to pay tax more than once on the same income. Legal residence is the principle that each legal person (natural or corporate has a single location of primary residence. New Zealand has double taxation agreements with various countries that set out which country will tax specific types of income. Double taxation is the imposition of two or more Taxes on the same income (in the case of income taxes) Asset (in the case of capital taxes) [7]
| Australia | Indonesia | Sweden |
| Belgium | Ireland | Switzerland |
| Canada | Italy | Taiwan |
| China | Japan | Thailand |
| Denmark | Malaysia | The Netherlands |
| Fiji | Norway | The Philippines |
| Finland | Republic of Korea | United Arab Emirates |
| France | Russian Federation | United Kingdom |
| Germany | Singapore | United States of America |
| India | South Africa | Mexico |
| Austria | Poland | Spain |
| Chile |
ACC earners levy
All employees pay an earners levy to cover the cost of non-work related injuries. It is collected by Inland Revenue on behalf of the Accident Compensation Corporation (ACC). Features ACC is the sole and compulsory provider of accident insurance for all work and non-work injuries
The earners levy is payable on salary and wages plus any other income that is subject to PAYE, for example overtime, bonuses or holiday pay. For other uses see Paye (disambiguation PAYE ( Pay As You-Earn) is an amount collected by Employers on behalf of the government The levy is 1. 4% for the year from 1 April 2008 to 31 March 2009. It is payable on income up to a maximum amount. The amount for the tax year 1 April 2006 to 31 March 2007 was of $96,619). Events 527 - Byzantine Emperor Justin I names his nephew Justinian I as co-ruler and successor to the throne Year 2006 ( MMVI) was a Common year starting on Sunday of the Gregorian calendar. Events 307 - After divorcing his wife Minervina, Constantine marries Fausta, the daughter of the retired Roman Emperor Year 2007 ( MMVII) was a Common year starting on Monday of the Gregorian calendar in the 21st century. [6]
Business taxes
Business income tax
Businesses in New Zealand pay income tax on their net profit earned in any specific tax year. For most businesses the tax year runs from 1 April to 31 March but businesses can apply to the IRD for this to be changed. Events 527 - Byzantine Emperor Justin I names his nephew Justinian I as co-ruler and successor to the throne Events 307 - After divorcing his wife Minervina, Constantine marries Fausta, the daughter of the retired Roman Emperor
Payments are made in three installments through the year. These are known as provisional tax payments. At the end of the year the business files a tax return (due on the following 7 July for businesses with a tax year ending 31 March) and any under or overpayment is then calculated. Events 1456 - A retrial verdict acquits Joan of Arc of heresy 25 years after her death Events 307 - After divorcing his wife Minervina, Constantine marries Fausta, the daughter of the retired Roman Emperor
Companies pay income tax at 30% on profits. [8] Tax rates for individuals operating as a business (that is, individuals who are self-employed) are the same as for employees. Self-employment is the individual pursuit of Capitalism. To be self-employed an individual is normally highly skilled in a trade or has a niche product or service [9] (See individual tax rates, above. Taxation in New Zealand is collected at a national level by the Inland Revenue Department (IRD on behalf of the Government of New Zealand. )
Goods and Services Tax
Goods and services tax (GST) is an indirect tax introduced in New Zealand in 1986. Goods and Services Tax (GST is a Value Added Tax introduced in New Zealand on October 1, 1986 at 10% and later increased to 12 The term indirect tax has more than one meaning In the colloquial sense an indirect tax (such as Sales tax, Value added tax (VAT or Goods and services Year 1986 ( MCMLXXXVI) was a Common year starting on Wednesday (link displays 1986 Gregorian calendar) This represented a major change in New Zealand taxation policy as until this point almost all revenue had been raised via direct taxes. GST now makes up 19% of the New Zealand Government's core revenue. [5]
Most products or services sold in New Zealand incur GST at a rate of 12. A service is the non-material equivalent of a good. A service provision is an economic activity that does not result in Ownership, and this is what differentiates New Zealand is an Island country in the south-western Pacific Ocean comprising two main landmasses (the North Island and the South Island 5%. [10] The main exceptions are financial services (eg banking and life insurance) and the export of goods and services overseas. Financial services refer to services provided by the finance industry. In Economics, an export is any good or Commodity, Transported from one country to another country in a Legitimate fashion
All businesses are required to register for GST once their turnover exceeds (or is likely to exceed) $40,000 per annum. In business revenue or revenues is Income that a company receives from its normal business activities usually from the sale of goods and services [11] Once registered, businesses charge GST on all goods and services they supply and can reclaim any GST they have been charged on goods and services they have purchased.
Fringe Benefit Tax
Employers are liable to pay Fringe benefit tax (FBT) on benefits given to employees in addition to their salary or wages (eg motor vehicles or low interest loans)[12]
There are several methods available for calculating FBT liability, including an option of paying a flat rate of 64% on all benefits provided. Fringe Benefits Tax ( FBT) within the system of Taxation in New Zealand is the tax applied to most although not all Fringe benefits (" Perks Employee benefits and (especially in British English) benefits in kind (also called fringe benefits, perquisites, perqs or [13]
See also
- Dividend tax
- Fiscal neutrality
- International taxation
- Laffer curve and the optimal tax rate argument
- Tax incidence
- Tax avoidance/evasion
- Tax resistance
- Tax haven
- Tax law
References
- ^ http://www.oecd.org/dataoecd/29/27/1891375.pdf The tax system in New Zealand: An appraisal and options for change
- ^ http://www.taxpolicy.ird.govt.nz/publications/files/BTR2006.pdf NZ Government discussion document on business taxes
- ^ http://www.taxpolicy.ird.govt.nz/publications/files/html/invincome/index.html NZ Government discussion document on taxation of investment income
- ^ http://www.taxpolicy.ird.govt.nz/index.php?view=461 NZ Government media release on forthcoming international tax review
- ^ a b http://www.treasury.govt.nz/budget2005/taxpayers/ Key facts for taxpayers from the NZ Treasury website
- ^ a b http://www.ird.govt.nz/income-tax-individual/itaxsalaryandwage-incometaxrates.html Income tax rates for individuals from the IRD website
- ^ http://www.ird.govt.nz/yoursituation-nonres/double-tax/ Double tax agreements from the IRD website
- ^ http://www.ird.govt.nz/business-income-tax/paying-tax/tax-rates/bit-taxrates-companytax.html Taxing companies from the IRD website
- ^ http://www.ird.govt.nz/business-income-tax/paying-tax/tax-rates/bit-taxrates-soletradertax.html Taxing sole traders from the IRD website
- ^ http://www.ird.govt.nz/gst/ GST from the IRD website
- ^ http://www.ird.govt.nz/gst/gst-faq.html Common questions about GST from the IRD website
- ^ http://www.ird.govt.nz/fbt/overview/fbt-attributedbenefit.html Fringe benefits overview from the IRD website
- ^ http://www.ird.govt.nz/fbt/calculating/ Calculating FBT from the IRD website
External links
- Treasury homepage
- Inland Revenue Department homepage
- Inland Revenue, Policy Advice Division
- The Accident Compensation Corporation homepage
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