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New Zealand Tax

Updated as at 1 October 2020

Tax Rates


Percent

Company

Flat Rate

28

Trustee


33

Individuals

Income to NZD 14,000 pa

10.5


NZD 14,001 - NZD 48,000 pa

17.5


NZD 48,001 - NZD 70,000 pa

30


Over NZD 70,000 pa

33


Nobody pays double tax


Trigg on Tax

About Des Trigg

Des Trigg has been a tax partner and national tax director at New Zealand accountancy firm BDO Spicers (Spicer & Oppenheim prior to merging with BDO). He has been the Asia/Pacific representative on the firm's International Tax Committee, has presented tax seminars for the New Zealand Institute of Chartered Accountants and presented regularly in South East Asia on tax planning/asset protection for migrants and expatriates. Des recently retired as a partner and has practiced sole as Tax Consultant, specialising in land transactions, tax disputes and negotiated settlements with Inland Revenue. Prior to joining Spicer & Oppenheim, Des was a tax inspector with New Zealand Inland Revenue.

The information on this page is provided by Des Trigg CA Tax Consultant of Auckland.  The content is for information only and should not be acted upon without specific and proper professional advice. Neither the author, NZCCHK nor any staff member accept any liability to any other party.

New Zealand Tax Rates

Download a copy of the New Zealand Inland Revenue Dept’s Interpretation Statement re assessing your tax residence, including determining your permanent place of abode

IRD Interpretation Statement 2016SEP20.pdf

1

New Zealand imposes income tax on a residency/source basis. It taxes residents on total worldwide income. It taxes non-residents on New Zealand sourced income only.


2

Under domestic legislation, an individual becomes New Zealand tax resident where:

• they have been personally present in New Zealand for 183 days in any 365 days; or

• they have established a permanent place of abode (PPOA) in New Zealand.


3

The meaning of PPOA has occupied both the Commissioner and the Courts for some time.  The Commissioner of Inland (CIR) appealed a decision of the High Court, which in turn overruled decisions of the CIR and Taxation Revenue Authority that favoured the CIR.  The Court of Appeal has confirmed the decision of the High Court.  The ordinary meaning of “to have a permanent place of abode in New Zealand” is “to have a home or property in New Zealand in which there is an enduring connection”. Owning (but not occupying) a residence does not meet the test of a PPOA.


4

New Zealand and Hong Kong entered into a Double Tax Agreement (DTA) which came into effect on 1 April 2012.  


5

The provisions of a DTA overrule domestic legislation.  It is possible that a person may be deemed a tax resident in New Zealand as well as Hong Kong based on respective domestic legislation.  Here the DTA takes precedence.  Reference should be made to Article 4 of the DTA which is in effect a tie-breaker test; the effect of which only one country can succeed in attaching a tax residency tag on taxes dealt with under the DTA.


Unlike New Zealand (which taxes on a global basis), Hong Kong imposes tax on a territorial basis.  Thus income earned outside Hong Kong is not taxed in Hong Kong.  If (unbeknown) one accelerates their New Zealand tax residency (e.g. under the physical presence test) all worldwide income then becomes taxable in New Zealand.  Further, whilst Hong Kong has a progressive resident tax rate (similar to New Zealand), various income splitting, exemption and rebates available in Hong Kong make the average Hong Kong tax rate far less than the top marginal tax rate in New Zealand (33%).  Thus some planning may be necessary.


6

There is a forty-eight month domestic income tax exemption in respect to foreign sourced income (other than employment or services income) available for overseas individuals who become tax resident.  The exemption is not available if the person has been a New Zealand tax resident within the previous 10 years.  This is referred to as the transitional residency exemption.


7

A company is resident if it is incorporated in New Zealand or its head office, centre of management or the place from which directors exercise control is situated in New Zealand.


8

The taxation of a trust is determined by the residence of its settlors.


9

Foreign sourced income derived by a New Zealand tax resident is subject to New Zealand tax at the taxpayer’s marginal tax rate.  Foreign tax paid is available as a credit up to the equivalent New Zealand tax imposed.  Non-resident withholding tax (NRWT) deducted from passive income (interest/dividends/royalties) is generally available in full as a credit. This is provided either by way of a double tax treaty or domestic tax legislation.  Imputation credits attached to foreign dividends are not available as a tax credit.


10

New Zealand adopts a comprehensive international tax regime under which New Zealand residents are subject to New Zealand tax [in respect to foreign investments] under either the Foreign Investment Fund (FIF) or Controlled Foreign Corporation (CFC) regimes. Under the CFC regime, foreign sourced income of a foreign company controlled by New Zealand shareholders is attributed back to the New Zealand resident shareholder. However, where a CFC generates active income (as opposed to passive income such as interest), that active income will not be reported for New Zealand taxation purposes; nor attributed to the New Zealand shareholders of the foreign company.  


Where a New Zealand resident has an interest in a FIF there is a requirement to calculate and return income attributable to that interest.  Thus income can be taxed on an unrealised basis - see below.


11

A person has FIF income if inter alia that person has rights in a foreign company, rights under a life insurance policy issued by a non-resident and such rights/entitlement are not otherwise exempted or fall within the CFC regime.


12

Pensions and annuity benefits are taxed as received.  Certain lump sum withdrawals from foreign superannuation schemes no longer come under the FIF regime.  First of all there is a four year window (non-taxable) which is in addition to the transitional residency exemption.  Outside of the four year window, the receipt of lump sum payments will be based on the length of residence of the person in New Zealand.


13

Dividends derived by a NewZealand resident individual from a foreign company (not subject to FIF rules) are subject to New Zealand income tax on the gross dividend. Credit is available for foreign tax paid up to the equivalent New Zealand tax.  Reference needs to be made to any double tax agreement for any variation to the above.  Insofar as New Zealand/Hong Kong is concerned, Article 10 deals with dividends.


14

Where an investor owns less than 10% of a foreign company (referred as a portfolio investment), New Zealand has introduced a fair dividend rate (FDR) regime to tax deemed foreign dividends. The FDR has been set at 5% of the market value (MV) in a portfolio investment.  Australian listed investments, in general, are excluded from the FDR regime. The FDR is deemed to be the return, including dividend, from the investment in the offshore shares on an annual basis.


Assume a taxpayer holds offshore shares with a market value (MV) of NZ$100,000 at 1 April 2020.  During the year the taxpayer acquires another NZ$20k, which is held at 31 March 2021. During the year ended 31 March 2021, the taxpayer receives a dividend of NZ$3,000.  Shares have a MV of NZ$121,000 at 31 March 2021.  Under FDR the taxpayer would be taxed on NZ$5,000 (5% of NZ$100,000). However, if a non corporate taxpayer can show his actual return is less than NZ$5,000, he would be taxed on that lesser amount.  In the illustration, the taxpayer has received dividends of NZ$3,000 plus gain of NZ$1,000 to equal NZ$4,000.  As a result, tax would be imposed on NZ$4,000 in the 2021 income year.  Corporate taxpayers do not have this option under the FDR method.


15

Unlike much of the Western world, New Zealand does not have a general capital gains tax (CGT). In its current term, the Labour Government went close to introduction, but did not get support from its coalition partners. Many commentators believe tax equity will only be achieved by introducing a CGT.  


There are certain transactions however (e.g. property dealers/ developers and traders in equities), where any gain/loss is assessable/deductible.


16

In addition, to overcome a perceived problem of land banking, Government has introduced a five-year bright-line test for residential land acquired on or after 29 March 2018.  Profits from the sale of residential land within the five year period are taxable.  There is an exemption for a person’s main home plus property acquired by way of inheritance.

17

New Zealand residential property had been a favoured investment option for non-resident investors.  Negative gearing allowed rental losses to be offset against current and future assessable income.  Changes from 1 April 2019 mean rental losses can (now) only be offset against future rental income. There is no longer an entitlement to claim depreciation on residential buildings.

18

Refer attached schedule for current tax rate for individuals, companies and trusts.


19

New Zealand resident companies and New Zealand subsidiaries of a foreign company are taxed on net income after allowable deductions.


20

Non-resident withholding tax (NRWT) is charged on dividends, interest and royalties remitted from New Zealand to non-residents. The rate is generally 15% (interest/royalties) and 30% (dividends). In respect to countries with which New Zealand has a double tax treaty, NRWT is reduced to 15% (dividends) and 10% (interest/royalties).


NRWT is not deducted from the dividend paid where the company attaches full imputation credits and the person hold 10% or more of the shares in the company.


NRWT on interest can be substituted with a 2% approved issuer levy (AIL) which is payable by the borrower [the 2% itself is tax deductible]. This is not available where the parties (lender/borrower) are associated.


21

Investment in a Portfolio Investment Entity (PIE) allows returns to be taxed at a maximum 28%.  Some investors will be taxed as low as 10.5%.


22

An investor, who is not resident in New Zealand, can receive income that has a zero rate of tax attracted.  This recently introduced incentive to attract foreign investment is known as a notified foreign investor (NFI).  An NFI can invest in a Portfolio Investment Entity (PIE) via a zero-rate PIE.


23

Advice/Warning


Migrants/returning expats do need to take professional advice prior to moving to New Zealand. There is increasing cooperation among tax authorities worldwide to ensure taxpayers meet their global tax obligations. New Zealand Inland Revenue are currently actively conducting reviews to ensure taxpayers have correctly recorded income from foreign investments. In a number of cases, migrants/returning expats have received entitlements (e.g. pension/lump sum payments/ dividends/interest), which are not subject to tax in the country of source, but which are liable for tax in New Zealand (unless exempted as a transitional resident).


24

What if I do get it wrong?


Where income has not been declared; or expenses wrongly claimed, New Zealand imposes a costly penalty regime.  The resulting additional core tax is then subject to accumulating late payment penalty, accumulating use of money interest and, some instances, shortfall penalties.


A rule of thumb method is that one can treble the amount of core tax to take into account the combination of penalties referred above.  A voluntary declaration (in other words one gets to Inland Revenue before they get to you) will generally reduce the impact of shortfall penalties.


25

Disclaimer:


This update is provided by Des Trigg CA Tax Consultant of Auckland.  The content is for information only and should not be acted upon without specific and proper professional advice.  Neither the author, New Zealand Chamber of Commerce in Hong Kong, nor any staff member accept any liability to any other party.


Des Trigg CA TAX CONSULTANT  Mobile: (+6421) 768-967  Website: www.destrigg.co.nz  Email: des@destrigg.co.nz   1 October 2020