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Comparing New Zealand and Australia's income tax systems

Residency status for income tax

New Zealand Australia
  • 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.

Income year

New Zealand Australia

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.

Income tax rates for resident individuals

New Zealand Australia
Find out the basic rates

Income tax rates for resident individuals for the 2017-2018 income year (ending on 30 June 2018):

Taxable income ($AUD) Tax rate
$0 - $18,200 Nil
$18,201 - $37,000 19c for each $1 over $18,200
$37,001 - $87,000 $3,572 plus 32.5c for each $1 over $37,000
$87,001 - 180,000 $19,822 plus 37c for each $1 over $87,000
$180,001 and over $54,232 plus 45c for each $1 over $180,000

Find out more about individual income tax rates.

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 2% of your taxable income. A variation to this calculation may occur in certain circumstances.

Income tax rates for non-resident individuals

New Zealand Australia

If the non-resident individual is working and earning income in NZ the income tax rate is the same as the income tax rates for resident individuals.

If a non-resident earns passive income such as interest, dividends and royalties they will need to have non-resident withholding tax (NRWT) deducted from this income.
 
Income tax rates for non-resident individuals for the 2017-2018 income year ( ending on 30 June 2018):
Taxable income ($AUD) Tax rate
$0 - $87,000 32.5c for each $1
$87,001 - $180,000 $28,275 plus 37c for each $1 over $87,000
$180,001 and over $62,685 plus 45c for each $1 over $180,000
 

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

Income tax rates for companies (irrespective of residency status)

New Zealand Australia
Find out the company tax rate

27.5% for base rate entities,
Otherwise 30%.
Rates are for the 2017-18 income year

Capital gains tax (CGT)

New Zealand Australia

There is no capital gains tax.

Certain capital gains are taxable if you buy property with the intention of resale.

Also, a residential land withholding tax applies if you are an offshore RLWT person who buys and sells residential property within two years after 1 October 2015.
  • Capital gains tax is the tax you pay on any capital gain you make when a capital gains tax event occurs. 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, but 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.

Paying income tax throughout the year

New Zealand Australia

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 about paying business income tax

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 about PAYG instalment essentials.

Income tax to pay at the end of the year

New Zealand Australia

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 rules

New Zealand Australia

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 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

Find out more about Trans-Tasman imputation

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.

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.

Debt and equity rules

New Zealand

Australia

 

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.

Trusts

New Zealand Australia

In general, the initial amount of money you put into a trust is not taxed. The tax residency of the settlor is important in determining the tax treatment of offshore income and distributions to beneficiaries. A New Zealand trustee is taxed at a flat rate of 33 cents in the dollar on income not allocated to beneficiaries. Foreign trusts with a New Zealand resident trustee must register with Inland Revenue.

Find out more about trusts and estates

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

New Zealand Australia

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 about depreciation

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

Some items, like land and trading stock, are specifically excluded from the definition of a depreciating asset.

The ATO publishes an annual guide to depreciating assets.

Thin capitalisation

New Zealand Australia

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.

Note

Whether the thin capitalisation rules apply is subject to ownership/control rules one entity may have in the other, whether direct or indirect.

Australia’s thin capitalisation rules are designed to ensure that businesses operating in and out of Australia do not reduce their Australian tax liabilities by using an excessive amount of debt capital to finance Australian operations. An entity is said to be thinly capitalised if its assets are funded by a high level of debt and relatively little equity.

Generally, where the entity's debt exceeds 60 per cent of the net value of the Australian assets, a portion of debt deductions may be disallowed

The thin capitalisation rules only apply if the "debt deductions" of an entity and its associates exceed $2 million in the year.