Taxes in New Zealand are collected at a national level by the Inland Revenue Department (IRD) on behalf of the Government of New Zealand. National taxes are levied on personal and business income, and 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 – income tax does apply to property transactions in certain circumstances, particularly speculation. There are currently no land taxes, but local property taxes (rates) are managed and collected by local authorities. Some goods and services carry a specific tax, referred to as an excise or a duty, such as alcohol excise or gaming duty. These are collected by a range of government agencies such as the New Zealand Customs Service. There is no social security (payroll) tax.
New Zealand went through a major program of tax reform in the 1980s. The top marginal rate of income tax was reduced from 66% to 33% (changed to 39% in April 2000, 38% in April 2009 and 33% on 1 October 2010) and corporate income tax rate from 48% to 33% (changed to 30% in 2008 and to 28% on 1 October 2010). Goods and services tax was introduced, initially at a rate of 10% (then 12.5% and now 15%, as of 1 October 2010). Land taxes were abolished in 1992.
Tax reform continues in New Zealand. Issues include:
- business taxes and the effect on productivity and competitiveness of NZ companies
- differences in the treatment of various types of investment income
- international tax rules
New Zealand residents are liable for tax on their worldwide taxable income. In 2005–06, 43% of the New Zealand Government’s core revenue ($22.9bn) came from individuals’ income taxes.
Types of taxable income
- salary and wages
- business and self-employed income
- income from investments (interest, dividends, certain property transactions, etc.)
- rental income
- overseas income (including income from an overseas pension)
The amount of tax actually payable can be reduced by claiming tax credits, e.g. for donations, childcare and housekeeper, independent earners, payroll donations, income under $9,880, and children.
Tax credits on income under $9,880 and for children were removed effective from 1 April 2013.
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.
In addition, banks and other financial institutions deduct the relevant amount of income tax on interest and dividends as these are earned. This is known as resident 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
Individuals who are tax resident in more than one country may be liable to pay tax more than once on the same income. New Zealand has double taxation agreements with various countries that set out which country will tax specific types of income.