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What is income tax?

Why do you pay income tax?

When and how do you pay income tax?

How much income tax do you pay?

What if you don't pay the right amount of income tax?

Nominated person

Glossary

 

Glossary

Here's a list of the words and terms defined on this page:

Allowable deductions
Business
Goods and services tax (GST)
Income
Income tax
Income year
Inland Revenue
KiwiSaver
Net income
Pay as you earn (PAYE)
Resident passive income (formerly Resident withholding income)
Resident withholding tax (RWT)
Schedular payments
Student loans
Summary of earnings (SOE)
Tax year
Working for Families Tax Credits

Allowable deductions

You can claim the following allowable deductions in your tax return:

  • return preparation fees
  • commission on interest and dividends
  • loss of earnings insurance premiums.

If you're self-employed you can also claim for costs related to producing business income (like paying wages, rent, buying stationery), excluding capital expenditure (like buying a computer), although you can claim depreciation of these assets.

This reduces your taxable income and so reduces the amount of income tax you pay. 

More information can be found on the IRD website:
Business income tax > Claiming business expenses >

Business

A business:

  • is an undertaking carried on for profit
  • receives business income for the goods and services it sells
  • can claim for costs relating to producing business income (refer to "Allowable deductions" above) to arrive at its net profit. The net profit includes drawings taken from the business
  • pays income tax on its net profit.

More information can be found on the IRD website:
Business income tax > Business income >

If you're in business have a look at the business tax information on the IRD website:
About your situation > Running a business >

Goods and services tax (GST)

While income tax is charged on your income, GST is charged on most expenditure - on the goods that you buy (eg MP3 player) and the services that you pay for (eg MP3 player repairs). 

When you buy something from a shop or get a quote for a service, the GST should already be included in the price unless specifically stated otherwise.   

The current rate of GST is 15%.

More information can be found on the IRD website:
Goods and services tax >

Income

Income is the money you get paid for the work you do. It's your responsibility to pay what is called "income tax" on this money. Once this has been paid you are left with your after tax income - income after tax has been paid

Income tax

Income tax is money taken out of your earnings. Unless you're self-employed, your employer will take out income tax before you get paid. The main types of income tax are pay as you earn (PAYE) and tax on schedular payments.

The amount of income tax you pay depends on the amount of money (income) you earn.

More information can be found on the IRD website:
Individual income tax >

Income year

The income year, also known as the tax year, starts on 1 April and finishes on 31 March the following year. So the 2009 income year relates to income from 1 April 2008 to 31 March 2009.

Inland Revenue (also known as IRD, tax department, Te Tari Taake)

Inland Revenue collects most of the revenue that the Government needs to fund its programmes and the many services that the New Zealand community wants and needs.

Do you know that Inland Revenue:

  • collects about 80% of money the Government spends
  • collects and pays child support
  • administers Working for Families Tax Credits
  • runs the NZ Student Loan Scheme
  • operates from 17 cities and towns
  • employs over 4,700 staff?

More information can be found on the IRD website:
About us >

KiwiSaver

KiwiSaver is a voluntary, work-based savings initiative to help you with your long-term saving for retirement. It's designed to be hassle-free so it's easy to maintain a regular savings pattern.

More information can be found on the KiwiSaver website:
KiwiSaver >

Net income

Net income means your total income from all sources less any allowable deductions or current year losses (not including any losses brought forward).

If your only income is from your salary or wages (and you don't have any allowable expenses, for example income protection insurance) your net income will be your annual salary or wages before tax.

Pay as you earn (PAYE)

PAYE is income tax with ACC earners' levy included. If you see an entry on your payslip for PAYE this means that tax has been taken from your pay, by your employer, before it was paid to you. PAYE is put aside by your employer and paid to Inland Revenue on your behalf.  

More information can be found on the IRD website:
Work it out >PAYE calculator >

Resident passive income (formerly Resident withholding income)

Resident passive income is income from interest and dividends derived in New Zealand.

Resident withholding tax (RWT)

RWT is the tax taken out of resident passive income.

Payers of interest (such as banks and similar institutions) take RWT out of interest payments and send it to Inland Revenue. You might notice RWT being taken out on your bank statements - this is done to make it easier for you, so you don't have to pay it yourself.

More information can be found on the IRD website:
Resident withholding tax >

Schedular payments

Schedular payments (formerly withholding payments) to a contractor or casual worker, eg pamphlet deliveries are subject to tax at a flat rate. The tax taken out is put aside by your employer and paid to Inland Revenue on your behalf. At the end of the income year you need to fill out an IR3 tax return.

More information can be found on the IRD website:
Employer responsibilities > Making payroll deductions > Tax on schedular payments >

Student loans

The student loan scheme lets students take out a loan with the Government while they are studying at tertiary institutions, like universities and polytechnics. The loan is to help students pay compulsory fees, course-related costs and living expenses.

More information can be found on the IRD website:
Student loans >

Summary of earnings (SOE)

A summary of earnings contains income and tax information from your employer(s) or benefit payer(s), and the amount of the ACC earners' levy paid.

You'll need an SOE if you want to work out whether you might be due a refund. If you're an IR3 taxpayer, you put the information from the SOE into your Individual tax return (IR3) - we'll automatically send you an SOE in late May. If you need an SOE and haven't received one by the end of May you can request one online.

You can make changes directly on the SOE if it's not right (eg you had a one-off job or were paid more than $200 interest). Then send the updated SOE back to us. 

Tax year

See Income year above.

Working for Families Tax Credits

Families with dependent children receive tax credits to help with the costs of raising a family. The different types of tax credits are:

  • family tax credit
  • in-work tax credit
  • minimum family tax credit
  • parental tax credit.

More information can be found on the IRD website:
Working for Families Tax Credits >

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