The Tax System

No-One Likes Paying Tax.
They say that of all the debts, people are less willing to pay their taxes. It probably has something to do with the fact that they are not receiving anything from the payment that is made to the IRD.

Most people can see some worth or value from spending that they make, but with taxation it always feels like a donation to some organization for no return.

A famous quote by a gentleman (William E. Borah) went something like this.

“The marvel of all history is the pace with which men and women submit to the burdens unnecessary laid upon them by the governments”.

George Bernard Shaw had a slightly different view. “A government which robs Peter to pay Paul can always depend on the support of Paul”.

Whatever your view or opinion on the matter of taxation you will not be able to get around the fact that it is the law under which we live in this country. You may not agree with the tax system as well as the tax rates and penalties that are levied for taxation offences but there is little you or I can do about it. Like all the laws we have in this country they have been set down so that it is very clear what we can or should do.

New Zealand’s Tax System
New Zealand’s laws require people and organisations to pay taxes. The New Zealand Government uses these taxes to pay for government expenditure. New Zealand residents have to pay income tax in New Zealand on their worldwide income.

This means if you are a New Zealand resident then most of your income you receive will be subject to tax. This will also include any income from personal effort, investments, pensions or overseas income.

In addition you may have to pay goods and services tax (GST), which is included in the price you pay for the goods and services that you need. New Zealand does not have a capital gains tax, as yet, but profits from selling some assets can be taxable to you where the intention was to deal in that asset with a view of making a profit.

In New Zealand, the main government department that looks after taxation is the Inland Revenue Department, who will administer all the laws and ensure that all tax is collected according to regulations. You may also be subject to New Zealand Customs taxes, which are taxes imposed on goods imported.

The New Zealand tax system is what is known as a self-determined one. This means that the system relies on people’s honesty to comply with the tax laws as required. In essence, you are required to file your tax return to show the correct income you believe you should be taxed on and pay the appropriate tax amounts. It is important, therefore, that you understand your tax obligations to avoid being penalised or committing offences for which you could be fined or jailed.

Tax Residents
The residency rules are clearly set out that it is important to determine whether you are a New Zealand citizen for tax, or not. Having a New Zealand citizenship or having permanent residency does not necessarily mean you are a resident for tax purposes. On the other hand you could also be a resident for tax purposes, but not hold a New Zealand citizenship.

Briefly, you are a New Zealand resident for tax purposes if you meet any of the three conditions:

  • You are in New Zealand for more that 183 days in any 12 month period.

  • You have an enduring relationship with New Zealand, which basically means you have a permanent place of abode and other conditions apply.

  • You are away from New Zealand in the service of the New Zealand Government.

If you are a New Zealand citizen, you are generally allowed a credit for any tax paid overseas on the income that will be brought in to make up the total income on which you are taxed in New Zealand.

To claim a credit you will need to produce documentary proof of the overseas tax that has been paid.