• Residents are taxed on their worldwide income.
• Non-residents are taxed on New Zealand-sourced income.
• For residents of New Zealand and Australia, Article 4 of the Australia - New Zealand double tax agreement, contains a "tie-breaker" provision which allocates residency to one of the jurisdictions.

• Residents are taxed on their worldwide income.
• Non-residents are taxed on Australian-sourced income.
• For residents of Australia and New Zealand, Article 4 of the Australia - New Zealand double tax agreement contains a "tie-breaker" provision which allocates residency to one of the jurisdictions.

The standard New Zealand income year is from 1 April to 31 March.

You may adopt a different balance date if:

• the nature of your business makes a 31 March balance date inappropriate
• you wish to align to your overseas company's balance date (ie 30 June in Australia)
• a subsidiary wishes to align its balance date with its parent company
• an estate wishes to adopt the deceased's date of death, or
• a shareholder-employee wants the same balance date as the company.

The standard income year is from 1 July to 30 June. Entities, with the leave of the Australian Commissioner of Taxation, may adopt a different income year period.

Find out the basic rates here.

Income tax rates for resident individuals for the 2007/2008 income year (ending on 30 June 2008):

For more information, refer to Individual income tax rates.

Medicare levy

Medicare levy is the scheme that gives Australian residents access to health care. Australian resident taxpayers are subject to the Medicare levy calculated at a rate of 1.5% of your taxable income. A variation to this calculation may occur in certain circumstances.

The income tax rates for non-resident individuals are the same as the income tax rates for resident individuals.

Income tax rates for non-resident individuals for the 2007-08 income year ( ending on 30 June 2008):

Non-residents are not required to pay the Medicare levy.

Find out the company tax rate here.

30%

There is no capital gains tax.

• Capital gains tax is the tax you pay on any capital gain you make and include on your annual income tax return. Net capital gain = total capital gains for the year less total capital losses (including net capital losses from previous years) less any CGT discount and CGT small business concessions which you are entitled to.
• CGT is not a separate tax, rather net capital gains are included in assessable income for the income year.
• Generally, assets acquired on or after 20 September 1985 are taxable for CGT.
• Residents of Australia are liable for CGT on assets worldwide.
• Non-residents are liable for CGT on gains only if a CGT event happens to a CGT asset that has the "necessary connection with Australia". This includes land or interests in land situated in Australia and assets used in an Australian business.

Provisional tax

If your residual tax ("tax to pay" figure on your last return) was more than $2,500 you may be liable for provisional tax.

The provisional tax you pay during the year is offset against your end-of-year tax payable figure.

Find out more

Paying business income tax

Pay As You Go (PAYG) instalments

The Pay As You Go (PAYG) instalments system is used for making instalment payments during the income year towards your expected tax liability on your business and investment income.

Find out more

PAYG instalment essentials

Residual income tax is:

• the amount of tax you have to pay after subtracting any tax credits you may be entitled to (excluding other tax payments made during the year)
• calculated on your end-of-year tax return.

This is:

• the amount of tax you have to pay after subtracting any tax offsets, including rebates and tax credits you may be entitled to and excluding other tax payments made during the year
• calculated on your end of year tax return.

Imputation is a system that lets companies pass on to their shareholders the benefit of the New Zealand income tax they have already paid.

Companies can do this by "imputing" (attaching tax credits to the dividends they pay out) credits for the income tax the company has already paid.

The amount of tax credits attached to the dividend is called an imputation credit.

The trans-Tasman imputation legislation (enacted 25 November 2003) allows:

• Australian companies to elect to maintain an imputation credit account (ICA) in New Zealand
• wholly owned groups of companies (either, Australian and/or New Zealand) to elect to form groups for imputation purposes only
• both types of elections to be made for the 2004 imputation year (1 April 2003 to 31 March 2004) onwards.

Find out more

Trans-Tasman imputation

Since 1987, the imputation system has allowed Australian companies (and other entities taxed like companies) which pay Australian tax, to pass on to their Australian members a credit for income tax paid on profits when distributing those profits.

Although shareholders are taxed on the full amount of the profit represented by their dividend distribution, they are allowed a credit for the tax already paid by the corporate entity.

This prevents double taxation - that is, the taxation of company profits when earned by a company, and again when a shareholder receives it as a dividend.

From 1 October 2003, a New Zealand company that has chosen to join the Australian imputation system may pay dividends franked with Australian franking credits. Australian residents who own shares in a New Zealand company or who receive a distribution from a partnership or trust that receives dividend income from the New Zealand company may be able to claim a tax offset for the Australian franking credits. This reform is known as the Trans-Tasman imputation reform.

There are no debt and equity rules.

There are specific rules that define what constitutes equity and debt for tax purposes.

These rules determine whether:

• the return on an investment or arrangement is treated as a dividend (and, therefore, frankable and non-deductible to the issuing entity),or
• the return is treated like interest (and therefore deductible to the issuing entity and not frankable).

These rules are also relevant for the thin capitalisation rules and for withholding tax purposes.

In general, the initial amount of money you put into a trust is not taxed. Any income the trust earns (eg, through investment or business income) is taxed at a flat rate of 33 cents in the dollar. The trustee is liable for paying this income tax regardless of where they live in the world.

Under Australian income tax law, most trust estates are not taxed as companies.

Generally, if the income of the trust is distributed to the beneficiary, the beneficiary will include that income in their assessable income. If the beneficiary is a non-resident, under 18 years of age or under a legal incapacity, the trustee will deduct the appropriate tax.

Ordinarily, if no beneficiary is presently entitled to the income of the trust, the trustee will be assessed on the trust income.

Special rules apply to certain public trading trusts and certain corporate unit trusts which are treated as companies, and to superannuation funds.

Depreciation is a deduction that business taxpayers can claim against their gross income. It's an allowance given in recognition of the fact that fixed assets decrease in value over their working life. Not all fixed assets can be depreciated.

Find out more

Business income tax - Depreciation

Generally, a deduction is available for the decline in the value of certain depreciating assets which are used to earn assessable income.

The Australian rates of depreciation are set out in Taxation Ruling TR 2007/3.

Find out more

Guide to depreciating assets 2006-07

A company is thinly capitalised when its capital is made up of a much greater proportion of debt than equity.

The thin capitalisation rules are designed to ensure that profits of a foreign-controlled entity are subject to New Zealand income tax and are not removed from the tax base by way of interest expense.

An entity is said to be "thinly capitalised" if its assets are funded by a high level of debt and relatively little equity.

The thin capitalisation provisions can limit the deductibility of interest and other "debt deductions" in certain cases. For example, a non-resident might incur an interest expense in relation to their Australian operations or an Australian entity which is controlled by a non-resident might incur an interest expense.

In many cases, a deduction for the interest (or for other "debt deductions") will be partly disallowed if the debt exceeds three times the equity.

The thin capitalisation rules only apply if the interest or the other 'debt deductions' of an entity and its associates exceed $250,000 in the year.

For more detail on the thin capitalisation provisions, refer to:

• Thin capitalisation: overview of the thin capitalisation rules
• Thin capitalisation guide
• Guide to thin capitalisation calculations for non-ADI inward investment vehicles
• Guide to thin capitalisation calculations for non-ADI inward investors

Transfer pricing is the practice of pricing goods, services and intangibles between associated parties.

The focus of New Zealand's transfer pricing rules is to ensure that the proper amount of income derived by a multinational is attributed to its New Zealand operations.

For more help

Transfer pricing

Australia's transfer pricing provisions allow the Australian Tax Office to adjust amounts charged between related parties to reflect arms' length amounts.

For more information on the transfer pricing provisions refer to the following booklets:

• International transfer pricing -introduction to concepts and risk assessment
• International transfer pricing - applying the arm's length principle
• International transfer pricing - advanced pricing arrangements
• International transfer pricing - a simplified approach to documentation and risk assessment for small to medium businesses