Tax Terms Used

Business Tax Terms Used

Balance date
For most businesses the accounting year ends on 31 March. This is their balance date.

Business income
This is income earned from goods and services you sell (including invoices you've issued but have not yet received payment for).

Capital expenditure
Any expenditure that creates an asset, for example:

  • purchase of plant or machinery
  • improvements to assets that increase their usefulness or extend their useful life
  • expenditure incurred in transporting an asset to its site and preparing it for use.

A formal and legal entity in its own right, separate from its shareholders (or owners).

An allowance acknowledging the fact that your business assets eventually wear out or decrease in value, even though you routinely maintain or repair them.

A deemed disposal is:

  • an asset that is compulsorily acquired
  • an asset taken out of NZ (other than only temporarily)
  • changes in use or location of use of a business asset
  • ceasing intangible asset rights
  • an asset that is irreparably damaged
  • any distribution of assets (including distributions of assets to the beneficial owners for no cost
  • ceasing deemed ownership of a fixture or improvement
  • an asset that is lost or stolen if that asset is not recovered in the income year when the loss or theft occurs.

Company profits paid to shareholders according to the proportion of the company they own.

The money that you take out of a business to either live on and/or pay any personal expenses. Drawings are part of the net profit and not a business expense.

Costs associated with producing business income, for example, paying wages, rent, buying stationery; but not including capital expenditure.

Fringe benefit tax
A tax on benefits that employees receive or enjoy as a result of their employment

Imputation credit
A tax credit received from a company for tax it has already paid on the profits it derives.

Net Profit
Business income minus allowable expenses

Non-profit organisation
A non-profit organisation is any society, association or organisation:

  • Not carried on for the profit or gain of any member, and
  • Whose rules do not allow money, property, or any other benefits to be distributed to any of its members.

Where two or more people are in a business partnership, each partner contributes something to the business and, in return, receives a share of any profit or loss.

Provisional tax
Tax paid in instalments during the year based on what you expect your income to be, or what it was last year.

Resident Withholding tax
An amount of tax deducted from investment income. For example, when banks pay interest they deduct resident withholding tax before paying the recipients.

Sole trader
A person trading on their own. The business is controlled, managed and owned by that person.

Tax credit
A credit for tax that has already been deducted or paid on your behalf. PAYE is an example: When your employer makes a PAYE deduction from your wages. At year end, you will have a tax credit equal to the total amount of tax deductions made during the tax year.

Another common example is resident withholding tax (RWT), where interest is taxed at source (for example, at the bank). The person receiving or entitled to interest will receive a tax credit (RWT credit) for the amount of tax deducted.