Glossary

Allowable deductions

Most businesses incur expenses when generating income and most of these can be deducted from their income to arrive at a taxable income. It is on this amount that you pay income tax.

If you're self-employed or a business 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.

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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 taxable income. The taxable income includes drawings taken from the business.

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Child support

Inland Revenue Child Support administers the child support scheme, which is designed to collect money from parents not living with their children to help financially support them. This money is paid to the person who cares for the child, or to the Government if the person looking after the child receives a sole parent benefit. If the paying parent is on salary or wages it is taken directly from their pay.

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Fringe benefit tax

Most benefits given to employees other than their salary or wages are fringe benefits and are taxed. Some examples of fringe benefits are:

• motor vehicles available for private use
• free, subsidised or discounted goods and services
• low-interest loans employer contributions to illness, accident or death benefit funds, superannuation schemes, and specified insurance policies.

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Goods and services tax (GST)

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

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Income

Income is money you earn from your job, running your own business, investments like bank savings and company shares, and regularly selling things for a profit. It doesn’t include most gifts or winning Lotto.

It's your responsibility to pay what is called "income tax" on this money.

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.

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.

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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.

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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.

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Student loans

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

Any money advanced under the student loan scheme to give assistance to tertiary students is a debt that is paid back once the borrower is working and earns more than the student loan threshold.

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).

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Tax credits

A tax credit is usually calculated at the end of the income year and reduces the total tax you need to pay. If you use the correct tax code the tax credits will be calculated before tax is deducted from your pay.

Tax rates

How much tax you pay depends on your income. Tax rates are different for individuals and companies.

Tax return

After the end of the tax year (March 31) some tax payers file a tax return to make sure they have paid the correct amount of tax for the tax year. Some taxpayers file an Individual income return (IR3) if they earned certain types of income, or income that hasn't had tax deducted, for example self-employed income. Others may request a Personal Tax Summary (PTS) which is for salary and wage earners. Inland Revenue will send some taxpayers a PTS because they need one.

Tax year

The tax year goes from 1 April to 31 March.

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Working for Families Tax Credits

Families with dependent children can receive tax credits to help with the costs of raising a family. You might qualify for one or more types of tax credit, depending on your circumstances.

The different types of tax credits are:

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