110289 Topic 3: Income Tax Overview

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110289 Topic 3: Income Tax Overview
2015-10-26 07:36:02
110289 Topic

Inc Tax overview
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  1. What is taxable income?
    ITA '07
    Section BC 5

    A person’s taxable income for a tax year is determined by subtracting any available tax loss that the person has from their net income under Part I (Treatment of tax losses)
  2. What is net income?
    ITA '07
    BC4 - Income more than deductions

    If, for a tax year, a person’s annual gross income is more than their annual total deduction, the difference is their net income for the year.
  3. What is annual gross income?
    ITA '07
    A person’s annual gross income for a tax year is the total of their assessable income that is allocated to the corresponding income year.
  4. What is assessable income?
    An amount of income of a person is assessable income in the calculation of their annual gross income if it is not income of any of the following kinds:

    • (a) their exempt income:
    • (b) their excluded income:
    • (c) their non-residents’ foreign-sourced income.
  5. Tax Residency Rules - Primary test
    • - A person is resident if the person has a permanent place of abode (PPOA) in New Zealand;
    • - This is regardless of whether the person also has a permanent place of abode elsewhere;
    • - This rule focuses on the person’s connection with New Zealand
    • - If you have a PPOA in New Zealand, then you are resident, irrespective of any other tax provision
  6. What is a “permanent place of abode”?
    • IRD Interpretation Statement 14/01
    • - Dwelling, continuity and duration of presence in NZ and association with the place of abode
    • - Weigh up a person’s overall connections.

    IRD thinks that just owning a house here could be enough, even if you have never lived in the house.

    The Courts have ruled differently. There should be more of an emphasis on the place at some time having been a home.
  7. Tax Residency Rules - 183/325 day tests
    A person present in New Zealand for a total period (or periods) more than 183 days in any 12 month period is deemed a resident.

    A person becomes non resident if the person is absent from New Zealand for more than 325 days in any 12 months (provided they do not have a PPOA in NZ)

    Person deemed resident/lose residency from first day of 183+/325+ day period in/away from NZ
  8. Tax Residency Rules - 183/325 day tests
    pt 2
    The ‘325 day rule can only be applied if a person is already tax resident and thus testing to see if residency ceases.

    Where the ‘183 days’ and the ‘325 days’ overlap the person remains resident until the person ceases to be resident under the ‘325 days’ criterion.

    Any part of the day the person is present in New Zealand that day is included in calculating ‘presence’ or ‘absence’
  9. Source of Income:
    Significance for Residents?
    • Taxed on income sourced worldwide
    • Basic NZ income tax rates applicable
    • “Non-residents’ foreign sourced income” exemption does not apply – (because they are not “non-residents)
  10. Source of Income - Change of Residence
    "Permanent arrivals from overseas"
    • Up until the date of arrival
    • - NZ sourced income only.

    • From date of arrival
    • - worldwide income is taxable & appropriate rebates/tax credits allowable.
    • - tax holiday (transitional resident) may be available
  11. Source of Income - Change of Residence
    "Permanent departures from NZ"
    • - Up to date of departure - worldwide income is taxable & appropriate rebates/tax credits allowable;
    • - From date of departure - NZ sourced income only.
  12. Source of Income - Special rules of 'transitional residents'
    Put in place to make it easier for New Zealanders to return home, and for non-New Zealanders to migrate here
  13. Rules for transitional residents - A person may be a “transitional resident” if the person
    • - is a natural person and
    • - is tax resident in NZ; and
    • - has been a non-resident (NR) for a continuous period of at least 10 years immediately prior to becoming resident; and
    • - has not been a transitional resident at any time before; and
    • - must not have ceased to be a transitional resident after the end of the 10 year non residence period.
  14. Transitional residents - Effects, exemptions
    Effect: A tax break on foreign sourced income

    Foreign Sourced Income - exempt

    • Treated as deriving income in the capacity of a Non Resident,
    • - foreign sourced income exempt,
    • - except for income from overseas employment and personal services performed overseas

    Exemption applies for 48 months
  15. Permanent Establishment (PE)
    Generally a fixed place of business through which the business of an enterprise, wholly or partly, carries on; based on Article 5, OECD Model Double Taxation Agreement (DTA) [i.e. concept of permanency ]

    Includes a place of management, a branch, an office, a factory, a workshop, a mine, a quarry, an oil/gas well, and an agricultural, pastoral or forestry property.

    Subsidiary of mult-inational company is a typical PE
  16. Non-Residents
    - Passive income (dividends, interest, royalties) sourced from NZ and received by a non-resident will be taxed at non-resident withholding tax rates. Personal services income is taxed at ordinary income tax rates.

    - a non-resident deriving any income from NZ does not qualify for any rebates/tax credits, unless they become resident during the tax year.
  17. Non-Residents - Other Exemptions
    Sec CW 19 – a non-resident deriving income from personal/professional services in NZ may have the income exempt from NZ tax under certain conditions:

    • - Country of tax residence has similar tax system;
    • - Stay in NZ 92 days or less; and
    • - Services performed for a non-resident;
  18. E-commerce
    - Income from business wholly/partly carried on in NZ.

    • - Preliminary/marketing activities/offshore non-interactive server aren't likely to be caught
    • - The more interactive the website, the more probable person is carrying on a business in NZ
    • - If Non Resident is carrying on such activity it may require apportionment of income/profit between NZ and other tax jurisdiction (in absence of DTA)
  19. Some filing taxpayers can use a different tax return date
    - Non-standard balance dates

    - With the consent of the Commissioner a taxpayer may furnish a return of income ending with the date of the annual accounts instead of 31 March (i.e. accounting year).

    • - Balance date between 1 April and 30 September inclusive (late balance date) in any year is deemed to relate back to 31 March before
    • - Balance date falling between 1 October to 31 March inclusive (early balance date) is deemed to relate to the next succeeding 31 March.
  20. Returns of Income - "Early" & "Late"
    • "Early"
    • Period = 1/10 to 31/3
    • Tax Returns Due = 7 July

    • "Late"
    • Period = 1/4 to 30/9
    • Tax Returns Due = 7th day of 4th month after balance date

    Standard tax year = 7 July