NZ Taxation Advisory Blog

Resident Withholding Tax (RWT) is a tax applied to the interest and dividends you earn from your bank accounts and investments, both in New Zealand and overseas. It is deducted at the source, meaning your bank or investment fund manager withholds the tax before making a payment to you. How RWT Works RWT is applicable to two main types of income: Interest Income – If you earn interest from savings accounts, term deposits, or other investments, your bank will deduct RWT before paying you the remaining interest. Dividend Income – If you receive dividends from shares or other investments, the company distributing the dividends will deduct RWT before making the payment. This system ensures that tax obligations are met in advance, reducing the need for individuals to manually calculate and pay taxes on these types of income. Why RWT Matters Ensures compliance with tax obligations without requiring extra effort from taxpayers. Prevents underpayment of taxes on investment earnings. Helps man...

An ultimate holding company plays a key role in corporate structures, as it exercises control over other companies through board influence, management oversight, and policy direction—usually by holding a majority of shares. This structure allows for efficient decision-making and centralized control over subsidiaries. Definition of an Ultimate Holding Company Under Part 12 of the Companies Act, an ultimate holding company is legally defined as: (a) A holding company of another company, meaning it has direct or indirect control over it. (b) Not a subsidiary of any other corporate entity, meaning it sits at the top of the corporate hierarchy. This means an ultimate holding company is the highest-level entity in a corporate structure, with no parent company above it. Overseas Ultimate Holding Companies Under Part 18 of the Companies Act, overseas companies can register with the New Zealand Companies Office to conduct business locally. This allows international corporations to establish a p...

Is Website Domain Registration an Allowable Deduction?  The answer depends on whether the expense is classified as capital or revenue in nature. Capital vs. Revenue Expenditure The distinction between capital and revenue expenses is critical because capital expenses must be depreciated over time, while revenue expenses can be deducted in full in the year they are incurred. According to established case law, three key tests help determine whether an expense is capital in nature: Is it of a one-off nature? Does it provide an enduring benefit? Is it part of the business structure of the taxpayer? Based on these tests, the cost of acquiring a domain name is generally considered capital expenditure because: It is typically a one-off cost. It provides long-term benefits. It forms part of the taxpayer’s business structure. Conclusion For most businesses, website domain registration is considered capital expenditure and must be written off through depreciation. However, businesses purchasi...

What is an Unacceptable Tax Position? An unacceptable tax position occurs when a taxpayer takes a stance on their tax return that lacks sufficient legal and factual support. If Inland Revenue determines that the tax position taken is more likely incorrect than correct, they may impose a UTP shortfall penalty. Capital vs. Revenue Expenditure – A Common UTP Issue One of the most frequent areas where unacceptable tax positions arise is in distinguishing between capital and revenue expenses. There is no single test for determining whether an expense is capital or revenue in nature. Instead, each case must be assessed based on its specific circumstances. Capital expenses provide a long-term benefit and are generally not deductible for income tax purposes. Revenue expenses are incurred in the ordinary course of business and can be deducted in the year they are incurred. If a taxpayer incorrectly classifies a capital expense as a revenue deduction, they could face an unacceptable tax position...

In New Zealand, sole traders, partnerships, and companies must file specific tax returns with Inland Revenue (IRD) based on their business structure. IR3: Individual Income Tax Return for Sole Traders New Zealand resident sole traders report their income using the IR3 – Individual Income Tax Return. This return is required if an individual earns more than $200 (before tax) in a financial year. Additionally, shareholder-employees who receive a salary without PAYE deducted must also include this income in their IR3 return. IR10: Financial Statement Summary for Companies Companies must file an Companies income tax return (IR4) each year. IR7: Tax Return for Partnerships and Look-Through Companies (LTCs) For partnerships and Look-Through Companies (LTCs), the IR7 tax return is used to report income and allocate profits or losses to partners or shareholders. Links Individual income tax return - IR3 Companies income tax return - IR4 Partnerships and look-through companies income tax retu...

When using your premises partly for business and partly for other purposes, you may be eligible to claim deductions based on the square metre rate method. This approach ensures that business-related expenses are accounted for in a fair and transparent manner. The calculation requires determining the portion of the premises primarily used for business. This area must be both obvious and identifiable as a business space, and it must be used for business purposes more than 50% of the time. The formula outlined in the Income Tax Act 2007, introduced by the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017, is as follows: (Total premise costs × Business proportion) + (Business square metres × Square metre rate) Breaking Down the Formula (Total premise costs × Business proportion): Covers mortgage interest, rates, or rent that can be deducted. (Business square metres × Square metre rate): Accounts for utility costs that are deductible. Links Income Tax Act 2007 ...

In New Zealand, a shareholder employee can receive an amount classified as a shareholder salary. Unlike standard PAYE income, this type of salary is not subject to PAYE deductions at the time of payment. Instead, it is treated as income for the shareholder employee and must be accounted for in their annual tax return. Eligibility for a Shareholder Salary To qualify for a shareholder salary, the shareholder employee must meet specific conditions: They should not receive regular salaries or wages of a fixed amount at consistent pay periods (e.g., weekly or monthly payments). They must earn less than 66% of their annual gross income from wages or salaries. Shareholders of look-through companies (LTCs) are not eligible for a shareholder salary. Tax Treatment and Deductions The amount paid as a shareholder salary is deductible as an employment-related expense for the company. One of the benefits of this structure is the flexibility it provides in tax planning, as the payment period can be e...

Understanding Reimbursement for Private Vehicle Use When a company reimburses an employee for costs related to the use of their private vehicle for business purposes, this payment is classified as "expenditure on account of an employee." This means: It is not taxable for the employee—it is treated as exempt income under tax law. Shareholder-employees without PAYE income can still receive these reimbursements. The reimbursement can be calculated using the mileage rate set by the Commissioner, among other methods. How Reimbursement Works The reimbursement amount should reflect the actual business use of the vehicle. Companies can choose: Mileage rates: Using IRD’s standard mileage rates. Actual costs: Keeping track of all business-related vehicle expenses. Using the mileage rate is often the simplest and most commonly accepted approach. Links Reimbursing shareholder-employees for motor vehicle expenses and the use of the Commissioner's mileage rate Meaning of expenditure on...

The Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 introduced key updates to how these expenses are calculated and applied to shareholder-employees. How Vehicle Use is Treated A close company is defined as a company with five or fewer natural persons who hold more than 50% of the voting rights. When a shareholder-employee uses a private vehicle for company business, it is treated as business use by the company itself. This makes it easier for close companies to claim business-related vehicle expenses while ensuring tax compliance. Choosing the Right Method Close companies can elect between two methods for apportioning vehicle expenses: Kilometre Rate Method – Uses IRD-approved mileage rates to calculate business-related vehicle expenses. Cost Method – Requires detailed tracking of actual vehicle expenses and the proportion used for business purposes. This choice was officially inserted into the Income Tax Act 2007 by the 2017 tax amendments. Links Elect...

When you're using your vehicle for both business and personal purposes, the way you claim tax deductions for motor vehicle expenses in New Zealand comes down to two options: the kilometre rate method or the cost method. Both are outlined in Operational Statement 19/04A1 and prescribed under the Income Tax Act 2007, but once you choose one, you’re locked in. The Kilometre Rate Method This method allows you to claim a deduction based on a fixed per-kilometre rate set by Inland Revenue. It simplifies record-keeping since you don’t need to track every individual cost like fuel, repairs, or depreciation. To use this method, you must: Keep a record of business kilometres travelled (e.g., via a logbook). Advantages: No need to calculate individual vehicle expenses. Ideal for small businesses or sole traders with moderate vehicle use. Limitations: Not suitable if actual costs are significantly higher than the kilometre rate. The Cost Method Under the cost method, you claim actual costs ass...

The Companies Act 1993 provides a formal procedure for creditors dealing with non-paying companies in New Zealand. One of the key tools available is the statutory demand. What Is a Statutory Demand? A statutory demand is a formal, written demand for payment served on a company that owes a debt. It’s a serious step in the debt recovery process and often a precursor to court action. Once a statutory demand is properly served, the debtor company has 15 working days to: Pay the debt, Enter into an arrangement to settle the debt, or Apply to the High Court to set the demand aside. What Happens If the Company Doesn’t Respond? If the company fails to act within the 15 working days, this may be taken as presumptive evidence of insolvency. At this point, the creditor can apply to the court to have the company placed into liquidation. Can the Debtor Company Challenge the Demand? Yes. Under the Companies Act, the company served with the statutory demand can apply to the court to set it aside. The...

If you use your private vehicle for business purposes, you can charge the business-related portion of vehicle expenses as a business expense. Whether you’re running a small business or working as a sole trader, understanding how to accurately calculate and claim these costs is key. Charging for Business Use of a Private Vehicle When using your private vehicle for business, you can either use the kilometre rate method or actual cost method to charge for business expenses. Kilometre Rate Method The kilometre rate method is a simplified way to claim vehicle expenses. For the 2021-2022 tax year, the IRD-prescribed kilometre rate is 83 cents per kilometre. This rate can be applied to the business kilometres you’ve recorded in your logbook, whether your vehicle runs on petrol, diesel, electricity, or is a hybrid. To calculate business use: Keep a logbook to record business kilometres, Apply the prescribed kilometre rate to those business kilometres. For example, if your vehicle ran a total o...