Taxation in New Zealand
It's worth knowing about tax in New Zealand whether you live there or are just visiting.
International Visitor Conservation and Tourism Levy
The first tax a New Zealand visitor encounters is the International Visitor Conservation and Tourism Levy. Unless you are an Australian, a New Zealander, from the Pacific Islands (with exceptions), or a transit passenger at an airport, you will have to pay this $35 levy at the time when you apply for a visa or an NZeTA (New Zealand Electronic Travel Authority). (The fee for your visa application is separate.)
Goods and Services Tax (GST)
Then, as soon as you are out of customs and immigration, you will start paying another tax: the Goods and Services Tax (GST). This 15% tax is levied on every purchase you make. There are some exemptions; these include purchases of pure gold, silver or platinum (if that's what you have in mind for souvenirs!) and financial fees, such as when you exchange money or pay for a ATM withdrawal, etc.
Note that New Zealand does not offer GST refunds for tourists. This is unlike many countries where, when leaving the country, you can claim back the sales tax you paid during your trip by showing your receipt. No, New Zealand keeps your money. Say haere rā (Maori for "Goodbye!") to whatever GST you paid.
Well, not quite. If you are a tourist on a non-New Zealand passport, you can buy goods at a registered tax-free, GST-free retailer. The goods are then couriered to the airport, where you pick them up when you depart the country. But for the trouble and expense involved, you must be sure that you are getting a good enough deal to make it worthwhile.
(Note, though, that if you own a business in New Zealand, you can claim a GST refund for goods and services your business has purchased throughout the year.)
One reassuring thing about GST is that it is always included in the prices displayed.
Fun fact: Many governments collect a considerable proportion of their annual revenue from sales tax, but the proportion the New Zealand government collects is a bigger chunk of the total than in any other OECD country.
Tax exemptions
If you live and work in New Zealand, then you must pay income tax. However, before we get to that, let's look at the taxes that New Zealand DOESN'T impose.
In New Zealand there is:
- no inheritance tax
- no capital gains tax (except for investment properties, i.e., real estate that you have bought and sold within five years. Search the internet for "bright-line property rule" to find out more).
- no local or state taxes (although local authorities do levy a property tax, which in New Zealand is called "rates.")
- no social security levy
- no GST charged on residential rents, financial services and mortgage repayments, airfares for travel overseas, and purchases of pure gold, silver or platinum.
Income tax in New Zealand
If you work in New Zealand, you must pay tax on the following sources of income:
-salary and wages (including for work performed for an overseas employer)
-any payments you receive from the Accident Compensation Corporation as compensation for loss of earning
-some bonus payments (the tax rate differs depending on whether the bonus is paid as a lump sum or in installments)
-some allowances your employer pays you, such as for travel, accommodation, relocation, etc.
If you are a wage earner, then your employer deducts your taxes before you get paid in what is called the Pay As You Earn (PAYE) system. You do not have to fill out any tax forms at the end of the year. However, it is your responsibility to work out what your tax code (not your tax rate) is, declare it in the IR 330 form that your employer gives you, and make sure that your employer is using that code for you.
Tax codes
A tax code in New Zealand is a letter, or short combination of letters/numbers, that indicates what kind of earner you are.
The tax code that applies to most income earners in New Zealand is a description based on how much you earn in a year. The tax rate is a how much tax you must pay if that code is yours.
Tax code "SB": if your income (in total, from all sources) is no more than NZD 14,000 p.a. Tax rate: 10.5%
Tax code "S": if your income (in total, from all sources) is at least NZD 14,000 p.a. and no more than NZD 48,000 p.a. Tax rate: 17.5%
Tax code "SH": if your income (in total, from all sources) is at least NZD 48,001 p.a. and no more than NZD 70,000 p.a. Tax rate: 30%
Tax code: "ST": if your income (in total, from all sources) is more than NZD 70,000 p.a. Tax rate: 33%.
These are just four of the most common tax codes. There are several more.
If you work as an employee in New Zealand, make sure that your employer has recorded the correct tax code for you, else you could face a bill at the end of the year from the Inland Revenue Department.
Tax brackets
It's important to note that the tax rates referred to above do not apply to your whole income. New Zealand levies taxes according to tax brackets.
For example, let's say your annual income is $100,000. This means your tax code is ST, and, as explained above, the tax rate for tax code ST is 33%. But, actually, you are not charged 33% on your whole income, but only that part of it that exceeds $70,000.
Your $100,000 income would be divided into the following taxation brackets:
- $14,000, for which you would be taxed 10.5% (i.e., $1,470)
- $14,001 to $48,000 (i.e., $33,999), for which you would be taxed 17.5% ($5,949.82)
- $48,001 to $70,000 (i.e., $21,999), for which you would be taxed 30% (i.e., $6,599.70)
- $70,000 and over (in the case of someone earning $100,000 p.a.: $30,000),, for which you would be taxed 33% (i.e., $9,900)
So, adding up all those different amounts from different tax brackets, someone on an income of $100,000 p.a. would pay $23,919.52 in tax. That's an actual tax rate of 23.9%.
ACC levy
ACC means Accident Compensation Corporation (Te Kaporeihana Āwhina Hunga Whara in Maori). In New Zealand, you cannot sue anyone for damages if you get injured. Rather, you are automatically entitled to compensation from the ACC.
(Admittedly, there is provision for the courts to award exemplary or punitive damages if someone is injured because of the outrageous conduct of another person. However, awarding such damages is rare, and the amounts awarded are small.)
The ACC is funded by an ACC levy, which is basically a small tax on income. There are different kinds of ACC levy, each with a different rate. But the most common is the Current Earner's levy, for those who receive a salary. The current rate for the Current Earner's levy is 1.21%.
So, for example, if you are tax code ST, you would forfeit a total of 31.21% of your annual income: 30% to the Inland Revenue Department, and 1.21% to the Accident Compensation Corporation.
Tax on overseas income
In principle, New Zealand imposes a tax on all income earned, whether the source of that income is in New Zealand or overseas.
However, new migrants to New Zealand do not have to pay tax on income earned overseas for the first four years.
Also, New Zealand provides tax credits to people who are subject to taxation both in New Zealand and in another country. If you show that you have paid tax on your overseas income to that overseas government, New Zealand will recognize that and not tax you for it.
Furthermore, New Zealand has a double tax agreement with about 40 countries to avoid double taxation for people in two taxation regimes.
Tax credits
Finally, there are one or two ways of getting back some of the tax you paid.
Independent Earner Tax Credit
The New Zealand government offers a $10 per week tax credit to people who are eligible for the Independent Earner Tax Credit (IETC). To apply, you must be a New Zealand tax resident who is earning no less than $24,000 and no more than $48,000 p.a.
Donations
New Zealand's Department of Inland Revenue also rewards donors for their generosity. If you donate $5 or more to a government-approved donee (or, of course, to multiple donees), you can claim back either 33.33% per of your total donations or 33.33% of your taxable income, whichever is less.
New Zealand tax resources
For more details on taxation in New Zealand, visit the Inland Revenue Department website.
Books on New Zealand
0 Comments