Doing business in New Zealand - Grant Thornton

Tax
Summary
The principles summarised in this
general outline are relevant to New
Zealand tax residents generally and to
non-residents who derive income from
New Zealand.
The criteria for determining tax
residence are outlined in the sections
dealing with companies (see residence
criteria: companies, p22) and individuals
(see residence criteria: individuals p25).
Residence and source
New Zealand taxes:
• Residents on world-wide income
• Non-residents on income that is
derived from New Zealand.
Calculation of taxable income
Income tax is calculated on gross
income less allowable deductions.
Taxable income may differ from
accounting income as a result of both
permanent and temporary differences
in the basis of income recognition and
matching of expenses. For example,
temporary differences can arise due
to differences in tax and accounting
depreciation rates, or the time at
which income from certain financial
arrangements is recognised, and the
non-deductibility for income tax
purposes of general accruals and
provisions.
New Zealand has not enacted capital
gains tax legislation as such, although
some capital receipts may be taxable in
certain circumstances (including profits
from certain real property disposals
and profits arising from the disposal of
financial instruments).
Expenses of a revenue nature that
are incurred in deriving gross income
or conducting a business are generally
deductible in calculating taxable
income. There are exceptions to this
general rule. Examples include certain
entertainment expenditure that is
limited to 50% deductibility and the
denial of tax deductions to employees
for employment-related expenditure
(although such expenditure may be
reimbursed by employers free of tax).
Tax depreciation
Depreciation of capital assets (excluding
land) that decline in value when used
is deductible at rates determined by
the New Zealand Inland Revenue
Department. Tax depreciation is
generally calculated on a straight line or
diminishing value basis at the taxpayer’s
option. Certain intangible property
(excluding goodwill) is depreciable on
a straight line basis over the term of its
legal life.
From the start of the 2011/12 income
year, no depreciation can be claimed
on buildings which have an estimated
useful life of 50 years or greater.
Asset purchases costing $500 or less,
subject to certain criteria, can generally
be expensed at the time of acquisition
as opposed to being capitalised and
depreciated.
Gains on the disposal of depreciable
assets are taxable to the extent of any
excess of the sale price over tax writtendown
value. However, any gain in
excess of original cost is generally not
taxable.
Loss carry forward
Taxpayers may carry forward net tax
losses arising in any year to subsequent
years for offset against future income.
Special loss carry forward rules apply to
companies (see use of losses, p23).
Treatment of foreign income
Foreign income earned directly
Foreign income of New Zealand
residents that is earned directly
from overseas is generally taxed
in accordance with the principles
applicable to the calculation of taxable
income and at the tax rate applicable to
the taxpayer concerned. Foreign taxes
paid on that income may be credited
against the New Zealand tax liability,
but only to the extent of the New
Zealand tax payable on that income.
Foreign income may be taxable
irrespective of whether the income in
question is remitted to New Zealand.
For example, income arising from
foreign bank accounts is taxable
even though it may be capitalised or
reinvested.
Foreign income derived by an
individual may not be subject to New
Zealand tax if the person is considered
a transitional resident of New Zealand
(see transitional resident, p25).
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