Income Tax
New Zealand Income Tax
They say there are only two certainties in this life: death and taxes. In this article we take you through the basics of tax for individuals, covering income tax and other forms of tax in New Zealand.
Individuals pay tax in New Zealand on all income they earn. Direct taxation is compulsory for all Kiwis earning a salary, wages, commissions or any other form of income. New Zealand law requires almost all individuals to pay income tax to the Inland Revenue Department, on behalf of the government. New Zealand income tax is a compulsory payment which can be made directly or indirectly. However in this article, we will focus on direct taxes for individuals in New Zealand.
Purpose and uses of New Zealand taxes
Taxes have been levied by the state throughout history, and New Zealand is no different. The Inland Revenue Department states that taxes are collected "on behalf of the government, who use the money to benefit the New Zealand community." This is true overall; however views in the New Zealand community are greatly divided over how to spend this tax income, which leads to a lot of debate, political and otherwise. Taxes in New Zealand are collected for a variety of purposes, including:
- Infrastructure: roads, railways, power systems, dams, bridges, sewage systems and airports.
- Law and order: the court system and police force.
- Defence: the New Zealand army, navy, air force and other military organisations.
- Health: spending on our public health care system is the number one use of tax collected in New Zealand.
- Education: funding for educational institutions follows closely behind health in terms of taxation spending.
- Utilities: gas, electricity, public transport, water and waste disposal.
- Superannuation: financial support for older New Zealanders.
- Social welfare: benefits such as the DPB and sickness benefit.
- Operation of governmental systems.
Types of New Zealand income tax
Most Kiwis earning income through salary, wages, benefit or taxable pension will be paying their NZ income tax under a pay as you earn (PAYE) system. This means their tax contributions are automatically taken out by their employer on payday, whether it is weekly, fortnightly, monthly or otherwise. PAYE will include the tax rate as appropriate for your individual income level, plus an ACC earner's levy to fund our compulsory accident compensation scheme. The PAYE income tax rates for individuals in New Zealand are calculated on a progressive tax basis, so that your tax rate rises as your income increases.
Here are the current New Zealand tax rates:
- Income up to $38,000: 19.5 cents in every dollar is paid in tax
- Income $38,000 to $60,000: 33 cents in every dollar is paid in tax
- Income $60,000 and above: 39 cents in every dollar is paid in tax
The ACC earner's levy rate is $1.30 for every $100 of income, up to a maximum of approximately $1,300 of total levy being payable.
Withholding tax
Another type of tax that many individuals in are required to pay is withholding tax. This is a tax levied on self employed contractors and those operating in the horticultural and viticultural industries. The rates for withholding tax vary from 15 to 33 cents in the dollar. The types of people who will be paying withholding tax include:
- Agricultural contactors, some labourers, entertainers, forestry and bush workers
- Salespeople, insurance agents, examiners, members of councils and boards of trustees
- Models, professional sportspeople, shearers
Secondary tax
If an individual in New Zealand works more than one job, they will need to pay secondary tax on their lower source of income. This source will be taxed at a higher rate than their primary income, and again the percentage taken as tax will increase as the income becomes progressively higher.
Rental income tax
A large number of New Zealanders own rental properties and receive income on them. This income is liable for income tax, however a multitude of expenses such as rates, insurance, legal fees, and interest on the property's finance, repairs and maintenance, are all tax deductible. This means many Kiwis do not pay any tax on the income from their rental properties.
Income earned outside New Zealand
Some New Zealanders earn income by working or investing outside New Zealand. If both countries have rules on taxation of international income, it is possible that you could be taxed twice on that income. New Zealand has negotiated “double tax” agreements with a number of countries to determine which country has the initial or only right to tax on different types of income. If overseas investment returns are being brought back into New Zealand, these will also normally be subject to some form of taxation and a multitude of rules. The best idea in both cases is to contact the IRD to assess the situation.
Looking for more information? Find New Zealand income tax in the NZS.com directory.
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Business images from Flickr: Tax Calculator, New Zealand Flag and Wellington Buildings.
