Taxation is a vast and often complex subject. This page aims to provide a general outline on the tax system in New Zealand, relevant to potential or new migrants.
Who handles tax in New Zealand?
The Inland Revenue Department (IRD) is responsible for handling taxation issues for individuals, families, businesses, employers, not-for-profit groups, non-residents and visitors in New Zealand.
If you obtain employment in New Zealand, you will need to apply for an IRD number, which will serve as your unique tax identifier. This eight or nine-digit unique number will never change, even if you move to another country and then return to New Zealand at some stage in the future.
Will I need an IRD number?
You must obtain an IRD number if:
- You are earning an income
- You are starting a business
- You are registering for Working for Families tax credits
- You are registering for a student loan
- Your child has a part-time job
- You file tax returns
- You ask the Inland Revenue about your tax
- You apply for child support
If you do not have an IRD number, tax will be deducted at the ‘no notification’ rate, which is the highest rate of tax (currently 45 cents for every dollar earned or 47 cents if including the ACC earners’ levy). You can also apply for an IRD number for your child so a lower rate of withholding tax is deducted from interest earned on their bank balance.
The standard New Zealand tax year runs from 1 April to 31 March. The IRD is explicit in terms of how much tax income earners will owe. For every $1 earned, you will pay:
• 10.5 cents of every dollar for income up to $14,000
• 17.5 cents of every dollar for income from $14,001 and $48,000
• 30 cents of every dollar for income from $48,001 to $70,000
• 33 cents of every dollar for income of $70,001 and over
Accident Compensation Corporation (ACC) levy
Income that you receive from personal effort is liable for ACC earners’ levy. This levy is charged to cover the cost of rehabilitation and compensation following non-work related injuries. The levy is set at 2.4% for the 1 April 2011 to 31 March 2012 tax year and charged to a maximum of $2,278.04.
Earnings subject to the ACC levy include wages, salaries, back pay, holiday pay, overtime pay, long-service pay, bonuses, gratuities, taxable allowances, shareholder-employee salaries, and salaries to partners in a partnership.
Goods & services tax (GST)
Goods and services tax (GST) is a tax on most goods and services in New Zealand, most imported goods and certain imported services. GST is added to the price of taxable goods and services at a rate of 12.5%.
Taxable goods include all types of personal and real property and food, while services cover everything other than goods or money, for example TV repairs and doctors’ services.
Certain tax credits have been put in place in New Zealand to aid low- and middle-income families through Working for Families. Adjustments are made regularly to ensure the credits keep pace with inflation. Credits can be paid throughout the year or in a lump sum at the end of each financial year. There are four main categories of Working for Families credits:
- Family Tax Credit – (previously called family support) is a payment for each dependent child aged 18 or younger.
- In-work Tax Credit – (previously called in-work payment) is a payment for families working a minimum number of hours each week for a salary or wage.
- Minimum Family Tax Credit – (previously called family tax credit) is a payment for families earning up to $24,493 a year before tax.
- Parental Tax Credit – is a payment for a newborn baby for the first eight weeks or 56 days after the baby is born.
In 2009, an additional tax credit option was implemented called the Independent Earner Tax Credit. You may be eligible to receive this tax credit each month through your income.
Are you a New Zealand resident for tax purposes?
You will need to establish if you are a New Zealand resident or non-resident for tax purposes. You’ll be a:
- New Zealand resident if you’re overseas for less than 325 days in a 12-month period
- A non-resident if you’re overseas for more than 325 days in a 12-month period, and you don’t have an enduring relationship with New Zealand.
The Inland Revenue Department’s New Zealand tax residence guide (IR292) explains the residency rules in full detail.
Foreign Income Tax rule
Since 1 April 2006, people arriving to live in New Zealand may qualify for a temporary tax exemption on most types of foreign income. For further advice on the foreign income tax rules, please feel free to contact the experts.
Income tax for companies
New Zealand’s company tax rate has dropped to 28%, down from 30%, from 1 April 2011 for the start of the 2011/2012 tax year. The tax cut brings the company tax rate in New Zealand below the Australian company tax rate. The Inland Revenue Department is happy to answer any queries or questions you may have. If you are planning to set up a business in New Zealand, it is advisable to contact the IRD to discuss options and how to work out your tax and any other levies that you will be legally required to make.
Source: Inland Revenue Department