Characteristics of the New Zealand Tax System
Taxation is a complicated and vast subject. Well, it might also be boring. That’s why we summarized everything on the New Zealand taxation here for you all future visitors and prospective migrants. You might be delighted to hear that New Zealand has developed a simple and clear tax system, ranked by the experts as the second most competitive in the world.
The first step to take in New Zealand: Get an IRD number
You are considered a tax resident in New Zealand if your intention is to spend more than 183 days in the country within a year. So, if you intend to work there, you need to get a New Zealand IRD number. The IRD number is valid for life, i.e. you won’t need a new number if you leave and then return to New Zealand no matter how many years have passed. If you start working without this number, you will be deducted the highest possible rates. It’s good to know that New Zealand has signed mutual tax agreements with many countries to avoid its residents from being taxed twice. You may also qualify for a tax exemption on some of the foreign income, so you should check this once in the country.
Tax year in New Zealand starts on Apr, 1st and ends on March, 31st. If you have some income overseas or you arrive in New Zealand in the middle of the tax year, you need to file a tax return. Most of the newcomers do in their first year in the country.
Biggest Advantages of the New Zealand tax system:
- No payroll tax in New Zealand
- No Social Security tax
- No Inheritance tax
- No state or local taxes. Only the property rates are levied by local authorities.
- No gain tax (it applies only to some particular forms of investments)
- No health care tax (there’s only a very low levy for New Zealand accident compensation scheme).
- Four year Tax concession on the overseas investment income and pensions for the first years of residency in New Zealand.
What are New Zealand tax rates like?
The highest tax rate is 33% for income over NZ$70,000. The lowest tax rate is 10.5% on income up to NZ$14,000. For income from NZ$14,001 to NZ$48,000 – the tax rate is 17.5%; and for income from NZ$48,001 to NZ$70,000 – it is 30%. The maximum company rate is 28%. Because the tax system in New Zealand is tiered, your income after taxes will be much higher compared to being taxed a flat rate as it is in many other countries. Thus, if you earn NZ$100,000, you would be taxed 10.5% on the first NZ$14,000, 17.5% through to NZ$48,000, 30% through to NZ$70,000 and 33% on the remaining NZ$30,000 of the total NZ$100,000.
GST (Goods and Services Tax) – this is a flat rate tax, which is 15% and is added to almost all purchases. Financial services and residential rents are exempt from GST. This is also recognized as one of the good features of New Zealand’s tax system as the flat GST is simpler compared to the GST of many other countries.
No capital gains tax (CGT) – What is actually capital gains tax? It’s a tax on capital gain of assets like shares, bonds and property. New Zealand is one of the three countries without a CGT of some kind. But capital gains can be taxed as income in certain situations and therefore taxed under the Income Tax Act. So, be careful and learn more while in the country.
ACC (Accident Compensation Corporation) levy – It’s a tax referring to the cost for accident compensation. This is a unique New Zealand’s scheme providing 24-hour no-fault comprehensive injury cover if you injure yourself while visiting or living in New Zealand. But it’s not a replacement for travel insurance and does not cover illness, disrupted travel plans or emergency travel to get you back home. So, you are strongly recommended to arrange travel insurance. For 2014/15 the average ACC levy rates for injuries that occur in the workplace is NZ$0.95 per NZ$100 liable earnings, and for non-work injuries – NZD 1.26 per NZ$100 liable earnings. Earnings subject to ACC levy include salary, overtime pay, holiday pay, bonuses, taxable allowances etc.
Four year’s tax concession – There’s temporary four-year tax exemption in New Zealand for foreign residents who are eligible for the so called ‘transitional tax resident’ status. The exemption usually starts on the day of arrival in the country and is valid till the last day of that month four years later. For the duration of this period, transitional tax residents pay taxes only on their New Zealand sourced income. This exemption can be granted only once in a lifetime. You might be eligible for the transitional tax resident status if you arrived in New Zealand on or after 1 April 2006 and have not been resident for tax purposes in the country for at least 10 years prior to your arrival.
As a conclusion, New Zealand’s tax system is so good today because it has several very competitive features: no inheritance tax, no general gains tax, relatively flat, low income tax and broad-based GST. But this was not the case back in 2010. Since then, New Zealand has undergone some crucial reforms, including cutting its top income rate from 38% to 33 % and many others. Now, New Zealand can be given as an example to other countries in their efforts to improve their tax code.
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