An overview of the New Zealand Tax and Investment Landscape
In many respects, New Zealand is very similar to the UK. A shared language and many of the same interests. The legal system is founded on the English model and the financial infrastructure has many similarities.
There are, however, many differences. New Zealand is a smaller market than the UK which results in a smaller range of financial products and services, typically less complex than the UK. What follows is a brief outline. Please note that this is not intended to be a comprehensive list of features or differences.
Generally income is taxable whether earned in New Zealand or overseas. If the income was earned overseas, withholding tax will have been deducted, and you claim the credit for that tax when filing your tax return. There are some investment vehicles that can be utilised to minimise tax.
Tax Planning
Income:
The low income tax credit has been withdrawn as of 1 October 2008 and a new bottom tax rate of 12.5% on income up to $14,000 has been introduced instead. The income thresholds for the 21%, 33% and 39% marginal tax rates have increased as set out below.
| New rates from 1 October 2008 | |
| Income to $14,000 | 12.5% |
| $14,001 - $40,000 | 21% |
| $40,001 - $70,000 | 33% |
| $70,001 and over | 39% |
The introduction of new income tax rates part-way through the tax year means an average of the new and old rates may need to be applied to calculate tax liabilities for the complete 2008-09 tax year. The annual tax rate schedule for the complete tax year from 1 April 2008 to 31 March 2009 will therefore be as follows:
| Income range | Annual tax rate to be applied |
| $0 - $9,500 | 13.75% |
| $9,501 - $14,000 | 16.75% |
| $14,001 - $38,000 | 21% |
| $38,001 - $40,000 | 27% |
| $40,001 - $60,000 | 33% |
| $60,001 - $70,000 | 36% |
| $70,001 and higher | 39% |
All of the marginal tax rate thresholds are due to increase further over the next three and a half years, as set out below
| From 1 April 2010 | |
| Income to $17,500 | 12.5% |
| $17,501 - $40,000 | 21% |
| $40,001 - $75,000 | 33% |
| $75,001 and over | 39% |
| From 1 April 2011 | |
| Income to $20,000 | 12.5% |
| $20,001 - $42,500 | 21% |
| $42,501 - $80,000 | 33% |
| $80,001 and over | 39% |
Capital Gain: There is no capital gains tax in New Zealand. However, profits from the sale of property and shares may be classified as assessable income in certain circumstances, such as:
♦ When the business of the taxpayer comprises dealing in property or shares.
♦ When realised on the sale of government or local body stock, or corporate bonds.
♦ When earned by an insurance or superannuation company in which case it is taxed at 33% and retained as tax-paid growth for the investor.
Investments:
♦ Stocks and Shares: As there is no capital gains tax in New Zealand. This means that, you can buy shares in your own name and, unless it can be shown that an investment was purchased with the express intention of making a capital gain, any such gain will not be taxed.
♦ Portfolio Investment Entities (PIE) are a relatively new form of investment structure which effectively caps the tax on investment income in approved investment vehicles at 30%.
♦ International Investments are typically subject to an international investment regime known as Fair Dividend Rate (FDR). Under the provisions of FDR, investments can be taxed on 5% of the investment or the actual return (income and capital) of the international investment portfolio at the option of the investor.
♦ Superannuation (Pension) Funds: Taxation on superannuation (and other investments) is based largely on a ‘TTE’ model. Under this model, contributions to schemes are made after tax and returns made by the scheme are subject to tax. Conversely, at the point of withdrawal the funds are available to the recipient free of tax.·
♦ KiwiSaver : Is a relatively new superannuation regime in New Zealand which provides a number of relatively significant benefits to members including a $1,000 lump sum initial contribution from the government for all new KiwiSavers plus up to $1,042 per annum on a dollar for dollar matching basis. KiwiSaver is open to all permanent residents and citizens of New Zealand. Employers also have to match an employee’s contributions up to a maximum of 2% of the employees gross income and the employers 2% is tax free in the employees account.
♦ With the exception of a few legacy schemes, all superannuation schemes in New Zealand are defined contribution schemes.
♦ Transferring superannuation funds from the UK to New Zealand is subject to the receiving fund in New Zealand being registered with Her Majesty’s Revenue and Customs in the U.K. as a Qualifying Registered Overseas Pension Scheme (QROPS) . Under QROPS any UK pension fund transferred overseas to anything other than a QROPS registered plan is subject to heavy tax penalties
Property Market and mortgages
New Zealand’s property financing structures are loosely based on the UK model. However, there are a number of key differences:
♦ One of the key differences between New Zealand and England when it comes to buying a house is that, in New Zealand once predefined conditions are satisfied, a contract for the purchase and sale of real estate becomes binding on both parties.
♦ As regards finance for a property, the market in New Zealand is relatively ‘vanilla’. The relative size of the market in New Zealand means that more complex options are not commercially viable. This has proven advantageous in light of recent economic events with local banks having little to no exposure to ‘sub-prime’ debt.
♦ Lack of a long-term swap market means that interest-rates on mortgages can only be fixed for up to 5 years. There are no facilities to fix a mortgage for longer terms.
♦ The majority of mortgages written are table mortgages.
♦ Interest rates are typically higher than those in the UK. For example, current floating rates are around 6%.
♦ By far the majority of mortgage lending is undertaken by the main banks with only a few non-bank lenders which typically serve niche markets not served by the main banks.
♦ Life insurance is not mandated but recommended by most lenders.
Personal Insurances.
Health and disability insurance in New Zealand is also similar to that in the UK with cover available for death, trauma, disability and medical risks.
One of the fundamental differences between the UK and New Zealand as regards insurance is in the area of accidental risks (excluding death). In New Zealand accidental risks are typically covered by the Accident Compensation Corporation (ACC). Under a ‘no-fault’ /’no-blame’ regime, financial risks arising from accidental trauma such as income protection and medical needs are covered by ACC.
New Zealand also enjoys a public health system similar in many respects to those in the UK. There is also a strong private health insurance market typically providing cover for ‘elective’ procedures.
Unlike the UK, motor vehicle insurance is not currently a legal requirement for drivers. Consequently, comprehensive cover is preferred by motorists who elect to insure their vehicles. Another difference between the UK and New Zealand is that in New Zealand, it is the vehicle not the individual who is insured with cover for all drivers (subject to certain age restrictions). Typically, motor vehicle insurance costs are significantly lower than the UK.
New Zealand is subject to significant geothermal activity. In view of this a government run insurance programme – the earthquake commission provides homeowners with protection from such events which would typically not be covered by private insurance.
Our thanks to Jamie Coltman and Paul Beard of the Alexander Beard Group for their help in compiling this information. They can be contacted by email to;
New Zealand: Jamie Coltman. Managing Director-Alexander Beard (New Zealand) Ltd
United Kingdom: Paul Beard. Exc. Chairman - The Alexander Beard Group Plc