New Zealand Information: Personal Taxation

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New Zealand Residence and Liability for Taxation

The tax residence rules determine whether a person is a New Zealand tax resident. A person is tax resident in New Zealand if he or she is in the country for more than 183 days in any 12-month period, or has a permanent place of abode in New Zealand.

A permanent place of abode covers all of a person’s ties and links in the country, and is described as whether there is an “enduring relationship” with New Zealand, which overrides any rules about the number of days a person is in New Zealand.

To decide whether there is an enduring relationship with New Zealand, factors to be considered include whether a person has access to property in New Zealand; a person’s social ties, including where an individual’s immediate family lives; and what economic ties a person has in New Zealand, including an individual’s business and employment situation.

A person becomes a non-resident if he or she is away from New Zealand for more than 325 days in any 12-month period, and no longer has an enduring relationship with New Zealand.

The worldwide income of a New Zealand tax resident is subject to tax. Persons who are not New Zealand tax residents are liable for New Zealand tax only on their New Zealand-sourced income.

The New Zealand tax year is from April 1 to March 31 of the following year. Any person required to pay tax in New Zealand will need to apply for an IRD number.

If a non-resident’s income from New Zealand is interest, dividends or royalties, from which the correct amount of non-resident withholding tax has been deducted, a tax return is not required to be filed.

The overseas income of individuals who are new migrants, or returning New Zealanders who have not been resident for tax purposes in New Zealand for at least 10 years, may qualify for a four-year temporary tax exemption.

There are also special rules for non-resident contractors and non-resident entertainers who earn income from New Zealand.

New Zealand Rates of Income Tax, Allowances and Tax Credits

Personal income taxes rates rise on a progressive scale – 10.5% on taxable income up to NZD14,000; 17.5% from NZD14,001 to NZD48,000; 30% from NZD48,001 to NZD70,000; and 38% from NZD70,001 and over.

An individual’s taxable income includes income from employment, interest received, rental income (less rental expenses), and pensions and annuities (including qualifying overseas pensions).

Resident withholding tax (RWT) is generally required to be deducted from payments of interest to New Zealand residents. RWT rates on interest applicable from April 1, 2010 for individual investors are equivalent to the marginal personal income tax rates.

Dividends are taxed at a flat RWT rate of 33%, unless they have been franked under the New Zealand imputation system, under which companies that have paid company tax in New Zealand pass on to their shareholders an equivalent tax credit.

If an individual does not provide an IRD number to the payer, RWT is to be withheld at 33%.

An independent earners tax credit (IETC) is available for middle-income taxpayers. To be eligible for the IETC, a person must be a resident, earn at least NZD24,000 and must not receive a state benefit, Working for Families tax credits or New Zealand superannuation. The maximum annual amount of the credit is NZD780 from April 1, 2010, and is reduced by 13 cents for every dollar of income earned over NZD44,000.

Non-resident individual taxpayers are taxed at the then-current personal income tax rates.

A New Zealand resident must declare all assessable foreign income, gross of any tax taken out in the country from which the income came. If tax has been paid in another country, a resident may be entitled to relief from double taxation, subject to the availability of a relevant double taxation treaty.

New Zealand Social Security Taxes

Social security, or “government transfers”, is largely non-contributory in New Zealand, and neither employees nor employers make contributions. Unemployment, sickness benefits and pensions (superannuation), for example, are available to all residents irrespective of their employment history, although there may be other eligibility criteria and means testing.

Benefits are normally paid only after a minimum period of residence. Unemployment benefit is available only after two years, and superannuation usually after 10 years’ residence.

All employees must contribute to the Accident Compensation Corporation (ACC) scheme, which provides compensation in the event of an accident, either at work or elsewhere. ACC contributions are, from April 1, 2011, deducted from salaries at the rate of NZD1.47 per NZD100 of liable earnings up to an earnings limit of NZD111,669 (the figures and rates are usually reviewed annually).

KiwiSaver is available as a voluntary means of saving for retirement. Contributions are deducted from a person’s salary at the chosen rate of 2%, 4% or 8%, and invested in a KiwiSaver scheme. If a person is self-employed, the rate of contribution is agreed with the KiwiSaver provider, and payments are made directly to them.

The government makes a NZD1,000 tax-free contribution at the start of a person’s KiwiSaver account, and also matches an individual’s contribution up to a maximum of NZD1,042.86 each year. Employers also have to contribute an amount equal to 2% of a person’s annual contributions.

KiwiSaver savings are generally locked in until the age of eligibility for New Zealand superannuation (currently 65), but early withdrawal of part (or all) of the savings can be available, for example, when a person is buying a first home or moving overseas permanently.

New Zealand Property Taxes

Income received from renting out property is liable to income tax. However, depreciation, agents’ fees and mortgage interest, legal fees and repayment insurance can be deductible for tax purposes, in addition to local property taxes, insurance, and repairs and maintenance.

New Zealand has no stamp duty, mortgage stamp duty, land tax, property purchase tax or capital gains tax. However, gains on the sales of property may be taxable if the seller is a dealer in property, purchased the land for resale, or the property was subject to development.

Local property taxes (rates) are levied by local authorities and are based on the rateable value of properties. The annual bill for an average family house is between NZD1,000 and NZD2,000. It is not uncommon for residents, either individually or collectively, to appeal against their property valuation in order to obtain a tax reduction. Rates pay for local services such as street cleaning, rubbish collection, lighting and subsidies paid to local public transport companies. They usually also include water supplies.

New Zealand Inheritances and Gift Taxes

Inheritance tax (previously estate duty) is no longer payable in New Zealand.

A gift of any asset which is in New Zealand is liable for gift duty. In addition, a gift of property which is outside New Zealand is liable for gift duty if the giver’s permanent home is in New Zealand.

Gift duties are levied at progressive rates. Individuals giving gifts over NZD12,000 need to file a gift statement and forward it to the IR, although gifts up to NZD27,000 are exempted from gift duties.

A tax rate of 5% is levied on gifts of between NZD27,000 and NZD36,000; 10% on gifts between NZD36,001 and NZD54,000; 20% on gifts between NZD54,001 and NZD72,000; and 25% on gifts over NZD72,001.

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