The tax system in New Zealand

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Updated 2023-02-18 18:40

No matter how you earn money in New Zealand or what kind of visa you are on, you will need to pay some of your income into the New Zealand tax system. As with most countries, New Zealand has a progressive tax arrangement, which means that tax rates increase as income increases.

New Zealand's income tax rates are generally considered to be lower than the average for developed countries. According to data from the Organisation for Economic Cooperation and Development (OECD), the average income tax rate for the top income bracket was 37.8% in 2020. New Zealand's top income tax rate of 33% is lower than this average.

Applying for a tax number in New Zealand

If you are an expat living in New Zealand, you will need to apply for an Inland Revenue Department (IRD) number in order to work, receive income, or claim benefits in the country. An IRD number is a unique identification number assigned to you by the IRD, which is used to track your tax obligations and entitlements in New Zealand.

To apply for an IRD number as an expat, you will need to complete an IRD number application form and submit it to the IRD along with any required supporting documentation. You can find the IRD number application form on the IRD website or by contacting the IRD directly. You can also find the forms at a PostShop or AA driving licensing center.

In general, you will need to provide the following information and documentation when applying for an IRD number:

Your personal details, including your name, date of birth, and contact information
Your New Zealand bank account number OR a customer due diligence form if you don't have a bank account yet.
Proof of your identity, such as a passport or other government-issued ID
Proof of your immigration status in New Zealand, such as a work or student visa
Any other relevant information or documentation required by the IRD

It is important to note that you may need to provide original copies of your supporting documents when applying for an IRD number. The IRD may also ask you to provide additional documentation if needed.

Once you have submitted your application and supporting documentation, the IRD will process your application and issue you an IRD number if you are eligible. Usually, you will receive your IRD number via email or text within two days and then receive an official postal confirmation within ten working days.

Good to know:

If you do start working before you get your IRD number, you will be taxed at 45%.

Paying taxes in New Zealand

The financial year runs from April 1st to March 31st in New Zealand. Taxes will be automatically deducted from your wages, so unless you are self-employed, you won't need to do anything throughout the year to pay your taxes. If you are self-employed, you will need to keep track of your earnings and file an Individual Tax Return (IR3) at the end of the tax year, which will show the government how much tax you need to pay/if you are owed any tax refunds.

When you start a new job, you will need to fill in an IR330 form, which is generally supplied to you by your employer. This is for you to declare your tax code so you are taxed the right amount. If you are not sure about what tax code you should be on, there is an online tax code calculator on the IRD website. Most people with one job will have the tax codes M or ME.

Tax codes in New Zealand

There are several different tax codes that can be used in New Zealand, and the specific code that you are assigned will depend on your individual circumstances. Some of the most common tax codes in New Zealand include the following:

M: This tax code is used for people who receive salary or wages and have no tax credits or exemptions. The M tax code is the default tax code for most employees.

M SL: This tax code is used for people who receive salary or wages and have tax credits or exemptions that are not claimed through their employer. This tax code allows you to claim your tax credits or exemptions directly with the IRD rather than through your employer.

M X: This tax code is used for people who receive salary or wages and have received a payment summary (formerly known as a PAYE tax summary) from the IRD. This tax code allows you to claim your tax credits or exemptions directly with the IRD rather than through your employer.

ME: This tax code is used for people who are self-employed or receive income from other sources, such as rent or dividends. The ME tax code is the default tax code for most self-employed individuals.

M SLR: This tax code is used for people who receive salary or wages and have tax credits or exemptions that are not claimed through their employer and who have also received a payment summary (formerly known as a PAYE tax summary) from the IRD. This tax code allows you to claim your tax credits or exemptions directly with the IRD rather than through your employer.

It is important to note that tax codes can change over time, and you may need to update your tax code if your circumstances change. If you are unsure of your tax code or have any questions about your tax obligations in New Zealand, you should contact the IRD for more information.

Income tax rates in New Zealand

The specific income tax rates and thresholds that apply in New Zealand depend on the amount of taxable income you earn in a given year.

As of the 2021/22 tax year, the income tax rates in New Zealand were as follows:

10.5% on income up to NZ$14,000
17.5% on income between NZ$$14,001 and NZ$$48,000
30% on income between NZ$$48,001 and NZ$$70,000
33% on income over NZ$$70,000

It is worth noting that these tax rates only apply to taxable income, which is the amount of your income after subtracting any deductions or exemptions that you are eligible for. Taxable income is used to determine your tax liability, which is the amount of tax that you owe based on your income and the applicable tax rate.

In addition to these tax rates, New Zealand also has a tax credit system, which allows taxpayers to claim a credit for the tax that they have paid on their income. The amount of tax credit that you are eligible for depends on your taxable income and the number of tax credits you are entitled to. The tax credit system is designed to help reduce the overall tax burden on taxpayers, particularly those with lower incomes.

These income tax rates and thresholds are subject to change and may be different in future tax years. It is always a good idea to stay up to date on the latest tax laws and policies in New Zealand to ensure that you are paying the correct amount of tax.

Receiving a tax refund in New Zealand

In New Zealand, tax refunds are payments that the IRD makes to individuals or businesses who have paid more tax than they were required to pay in a given tax year. Tax refunds may be available to both employees and self-employed individuals, depending on their specific circumstances.

For employees, tax refunds may be available if the amount of tax that was withheld from their paychecks during the year was more than the amount of tax that they owed based on their taxable income. This can happen if an employee has multiple sources of income or claims tax credits or deductions that reduce their tax liability.

In general, you don't need to do anything if you are owed a tax refund. The IRD will make this calculation themselves and deposit anything you are owed into your bank account – you just get to sit back and relax. However, if you are claiming tax credits, believe you have been taxed the wrong rate, or have other reasons to pursue a refund, then you will need to file a tax return with the IRD. This can be done online using the IRD's myIR service or by completing a paper tax return and mailing it to the IRD. If you are entitled to a tax refund, the IRD will issue a payment to you, typically by direct deposit or check.

For self-employed individuals, tax refunds may be available if you have paid provisional tax during the year and your taxable income turns out to be lower than your estimate. Provisional tax is a system that requires self-employed individuals to pay tax on their estimated income throughout the year rather than waiting until the end of the year to pay tax on their actual income. If a self-employed individual's taxable income is lower than their provisional tax payments, they may be entitled to a tax refund.

To claim a tax refund as a self-employed individual, you will need to file a tax return with the IRD and include information about your income and expenses for the year. If you are entitled to a tax refund, the IRD will issue a payment to you, typically by direct deposit or check.

Good to know:

It is important to note that tax refunds are only available to individuals or businesses who have paid more tax than they owe. If you have not paid enough tax during the year, you may be required to pay additional tax when you file your tax return – ouch! To avoid this unpleasant situation, always make sure you are registered with the correct tax code. If you are self-employed, calculate in advance how much tax you anticipate paying so you are not hit with a surprise bill at the end of the year. An excellent way to keep on top of this as a contractor is the app Hnry.

GST in New Zealand

In New Zealand, the goods and services tax (GST) is a value-added tax that is applied to most goods and services sold in the country. GST is currently set at a rate of 15%.

GST applies to self-employed individuals and contractors in the same way that it applies to other businesses. If you are self-employed or a contractor and you sell goods or services that are subject to GST, you are required to collect GST from your customers and pay it to the Inland Revenue Department (IRD). You are also required to register for GST with the IRD if your business has annual taxable sales of NZ$60,000 or more.

If you are registered for GST, you are required to file regular GST returns with the IRD, in which you report the GST that you have collected from your customers and the GST that you have paid on your business expenses. You are also required to pay any GST that you owe to the IRD at the time that you file your GST return.

If you are registered for GST and you have paid more GST than you have collected from your customers, you may be entitled to claim a GST refund from the IRD. To claim a GST refund, you will need to include the information in your GST return and the IRD will issue a payment to you if you are entitled to one.

It is important to note that GST applies to most goods and services sold in New Zealand, but there are some exceptions. For example, some types of financial services and exports are not subject to GST. Therefore, it is always a good idea to familiarize yourself with the GST rules and regulations that apply to your business to ensure that you are complying with the law.

Corporate Tax in New Zealand

The current corporate tax rate in New Zealand is 28%, which is applicable to all types of companies, including resident and non-resident companies. New Zealand also has a dividend imputation system, which means that companies can attach imputation credits to dividends paid to their shareholders. These imputation credits represent the tax paid by the company on its income and can be used to reduce the tax liability of the shareholders.

In addition to the corporate tax, companies in New Zealand are also required to pay GST and employer-related taxes such as Pay-As-You-Earn (PAYE) and KiwiSaver contributions.

If you are an expat doing business or working for a company in New Zealand, there are some key things you should be aware of regarding corporate tax:

Tax Residency: In New Zealand, a company is considered a tax resident if it is incorporated in New Zealand or has its "central management and control" in New Zealand. If you are an expat working for a New Zealand company, your tax residency will depend on various factors, such as the length of your stay in the country and your ties to New Zealand.
Double Taxation Agreements: New Zealand has double taxation agreements with many countries, which can help to avoid double taxation on the same income. These agreements generally provide rules for determining which country has the primary right to tax certain types of income.
Foreign Tax Credits: If you are an expat working for a New Zealand company, you may be able to claim a foreign tax credit for any income tax paid in your home country. This can help to reduce your New Zealand tax liability.
Taxation of Investments: If you are an expat who owns shares in a New Zealand company or invests in a New Zealand-based managed fund, you may be subject to New Zealand tax on any dividends or capital gains.

Property Tax in New Zealand

In New Zealand, property tax is levied on the capital value of a property and is known as the "rates" or "local government tax." This tax is paid to the local government in the area where the property is located and is used to fund local services such as rubbish collection, parks and recreational facilities, and road maintenance. The amount of property tax paid will depend on the value of the property and the local government's tax rate.