Tax is one of those inescapable facts of life, even in New Zealand.
At least however the authorities here have developed a tax system that’s comparatively easy to navigate.
As well as simplicity, our tax system has the major attractions of predictability, fairness and a minimum of loopholes. It’s also a relatively favourable tax environment for your earnings and assets - the most attractive of 27 of the OECD countries researched by Professor Rob Salmond of the University of Michigan.
Tax is a complex area, and this information is only a summary. For more detailed information you can seek professional advice
Key features of New Zealand’s tax system include:
No inheritance tax
No general capital gains tax, although it can apply to some specific investments.
No local or state taxes apart from property rates levied by local councils and authorities
No payroll tax
No social security tax
No health care tax, apart from a very low levy for New Zealand’s ‘accident compensation injury insurance scheme
Will you need to pay tax in New Zealand?
The short answer is ‘yes’. Income tax and Goods and Services Tax (GST) is how we fund services for the benefit of all New Zealanders.
Not everyone in New Zealand needs to put in a personal tax return, but it is up to you to find out if you need to. If you have overseas income, or arrived part way through a tax year, you are required to file a return. The tax year runs from 1 April to 31 March. There are other circumstances under which you must file a return, check them out on the Inland Revenue website.
So, in practice, most new arrivals need to file a return in their first year here.
Find out about migrants’ tax obligations on the website of the government’s tax department, Inland Revenue (IRD). There’s also a handy ‘Top 10 facts’ guide you should check.
If you’re buying or starting a business, there are a number of tax obligations you need to be aware of. Information for businesses is available on Inland Revenue’s website. There are also regular workshops you can attend to learn more about business taxes in New Zealand.
Getting a tax number
Anyone earning income will have tax deducted, through the PAYE (Pay As You Earn) system. If you don’t have a tax number, known here as an IRD number, tax will be deducted at the highest rate.
So it’s a good idea to apply for an IRD number as soon as you arrive here. That way, you’ll be taxed at the right rate, right from when you start work.
To get an IRD number, you need to fill in an application form called an IR595. It’s available to download on the Inland Revenue website.
Once you’ve filled in the form, you’ll need to take it and the supporting documents requested on the form to a New Zealand Postshop or an Automobile Association (AA) Driver Licensing Agent.
If for some reason you can’t supply the documents Inland Revenue needs, you can call them on 0800 227 774 if you’re in New Zealand or +64 4 978 0779 if you’re calling from overseas.
New Zealand’s top personal tax rate is 33% for income over NZ$70,000. At the other end of the scale, the tax rate is 10.5% on income up to $14,000. For full details, see ‘New Zealand tax at a glance’ below.
The maximum company tax rate is 28%.
Any prospect of a comprehensive capital gains or land tax has been ruled out by the current Government led by the National party (new elections are due in 2014).
New Zealand also has a tax on consumption called Goods and Services Tax (GST). It’s a flat rate tax, currently 15%, that is added to almost all purchases. However, you don’t pay GST on residential rents and financial services. Businesses can recover the GST they pay as an input cost.
A flat rate GST is simpler than the systems used in many other countries where similar taxes are applied at confusingly different levels for different products and services.
Four years’ tax concession
Income from overseas investments or pensions can be exempt from New Zealand tax for your first four years of living here, if you’re eligible for ‘transitional tax resident’ status.
So, during that period, only your New Zealand sourced income may be liable to income tax.
While there’s no general capital gains tax on New Zealand investments, after the four years, tax can apply to realised and non-realised gains on overseas portfolios, including exchange gains.
For more information visit Inland Revenue’s website.
Avoiding double taxation
You might find yourself a tax resident in New Zealand as well as somewhere else. In that case, if both countries tax their residents’ worldwide income, there’s a possibility your income could be taxed twice.
New Zealand minimises that possibility by providing credits for tax paid overseas on income that is also subject to New Zealand tax.
In addition, New Zealand has agreements with 35 of our main trading and investment partners which eliminate double taxation.
NZ tax at a glance
|Personal income||Top rate: 33% from $70,000
30% - $48,001 to $70,000
17.5% -$14,001 to $48,000
10.5% - $0 to $14,000
|Tax credits||Working for Families credits for low and middle income earners|
|Social security & insurance levies etc.||Social security and health: covered by general tax, though many people have private health insurance
ACC (New Zealand’s unique accident compensation scheme): earners pay 1.45% up to a maximum of $118,191 in earnings. Motorists pay a levy with their annual car registration. Employers pay insurance cover based on industry risk.
|Capital gains & dividends||Capital gains: generally not on New Zealand investments but applies to foreign debt and equity investments|
|Dividends||Imputation system to avoid double tax|
|Gift duty||None since 2011|
|Tax on savings||Little tax relief on contributions to New Zealand retirement schemes, but saving is not compulsory. Tax paid at normal income levels at source but distributions are tax free. No mortgage interest tax benefits except for investment property|
|Fringe benefit tax||Paid by employer, up to a rate of 49.25% for employer provided cars, low interest loans, medical insurance premiums, foreign superannuation contributions etc. FBT is tax deductible so employer cost is effectively the same as paying cash remuneration|
|Sales & excise tax||Goods and services tax (GST) of 15% on most things.
Excise tax paid on petrol, tobacco, alcohol
Tax is a complex area, and this information is only a summary.