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Buying Rural Property in New Zealand: A Taxing Matter

Families and individuals seeking New Zealand residency and especially individuals and companies considering any type or level of investment are well advised to obtain early, competent and most importantly; qualified advice on the New Zealand taxation issues which will inevitably affect them. In New Zealand competent advice on taxation issues is provided by Chartered Accountants (as apposed to taxation attorneys in USA). The following is a brief summary of some major aspects of the New Zealand taxation system but is not intended to be comprehensive and definitely not intended as a substitute for specific advice from a qualified, experienced chartered accountant.

Taxation in New Zealand is managed and collected at a national level by the Inland Revenue Department (IRD). Taxes are levied both on company and on individual income. In addition there is a flat 12.5% tax (to be increased October, 2010 to 15%) on the supply of most goods and services (GST, similar to VAT in Great Britain). In New Zealand GST is generally considered to be a fair an equitable tax system that more evenly spreads the tax burden through society than a purely income earning tax system.

Individuals, farmers, companies and businesses who supply taxable goods and services are registered with the Inland Revenue Department and in practical effect collect GST tax on the goods and services they supply on behalf of IRD. GST is claimed back from IRD on legitimate business purchases and expenses and the net difference is paid to – or claimed from IRD through a regular reconciliation (one monthly, two monthly or six monthly).

Privately owned homes (or house rentals) do not attract GST; however land and buildings used for business and income earning purposes are normally registered for GST with Inland Revenue Department and when offered for sale are sold on a plus GST basis. If the purchaser is registered for GST purposes with IRD then the GST is normally refunded by IRD.

There are no capital gains taxes, land taxes (as for example in USA) or death duties in New Zealand. Local District and Regional Councils levy annual rates (as opposed to taxes) on rural and urban land, however these are relatively modest (compared to USA land taxes) and relate to services actually provided.

In the 2010 New Zealand budget it was announced that in October, 2010 the GST tax would be increased to 15% from 12.5% and that personal taxation would be reduced at all levels The new lower tax rates aim to stimulate productivity in the economy and mean that people earning the average wage in New Zealand will soon pay lower effective tax rates than people in Australia and the United Kingdom, easing concerns about economic emigration. [8]

Income Tax rate
$0 – $14,000 10.5%
$14,001 – $48,000 17.5%
$48,001 – $70,000 30%
Over $70,000 33%
No-notification rate 45%

In addition it was announced that from the 2011/12 income year, the New Zealand company tax rate will fall to 28%  - encouraging productive investment and lifting competitiveness.

Employees deduct relevant amounts of income tax from salary and wages in a system known as Pay-as –you-earn (PAYE). Banks and other financial institutions deduct a relevant amount of income tax on interest and dividends as these are earned; known as Residents Withholding Tax.

At the end of each tax year individual tax payers who have not paid the correct tax (too much or too little) submit a personal tax summary from which over or under payments are reconciled.

One of the first subjects your advisor will wish to discuss is the entity you will use to purchase and operate a New Zealand property. Income earning properties are commonly operated by individuals, partnerships or through a limited liability company structure. However, if considered appropriate for your personal circumstances, your accountant or lawyer may well suggest that you consider the many very real advantages (tax and otherwise) of a family trust structure to take ownership of your new property or company, whether the property is income earning, or simply a lifestyle or residential.

New Zealand companies currently pay tax at 30% (to be reduced in 2011/2012) in the dollar earned, which is distributed to shareholders as dividends. Individual NZ shareholders receive a credit in their tax returns for the tax the company has already paid which is termed Dividend Imputation and avoids double taxation. Moreover it is possible to register the company with IRD with “Loss Attributing Qualifying Company (L.A.Q.C.) status. If the company experiences tax losses such losses may be distributed to the NZ shareholders to reduce their personal tax liabilities.

New Zealand residents are liable to pay taxation on all income regardless of the country in which such income is generated. However New Zealand does have double taxation agreements with a wide range of countries which set out which country alone will tax specific types of income.

These countries have double tax agreements with New Zealand
Australia Indonesia Sweden
Belgium Ireland Switzerland
Canada Italy Taiwan
China Japan Thailand
Denmark Malaysia The Netherlands
Fiji Norway The Philippines
Finland Republic of Korea United Arab Emirates
France Russian Federation United Kingdom
Germany Singapore United States of America
India South Africa Mexico
Austria Poland Spain
Chile    

Some agreements protect pension payments as well. The agreement with the United States, for example, prohibits New Zealand from taxing American social security or government pension payments, and the reverse is also true.[12]

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