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Part A Purposes and Interpretation

AA 1 sets out the main purposes of the Act: o To define net income and impose tax on it o To impose other obligations concerning tax o To set out rules for calculating and paying tax AA 2 words prevail over diagrams, flowcharts etc; and words mean what they are defined to mean

Part B Core Provisions


BA 1 Purpose of core provisions is: o To impose income tax, provisional tax, withholding liabilities, and other obligations concerning tax o To set out procedures for calculating and paying tax o To provide a basis for applying other Parts of the Act. I.e. - all the basic provisions are in this section and the rest of the act just provides details. BB 1 Income tax is imposed on taxable income, at the rates fixed by the Act, payable to the Crown. $0 - $14,000 $14,001 - $48,000 $48,001 - $70,000 $70,001 upwards 10.5% 17.5% 30% 33% Companies Trusts Non-qualifying trusts PIEs Maori authorities 28% 33% 45% 28% 17.5%

BB 2 sets out taxpayers main obligations to calculate and pay tax, and satisfy withholding obligations. BB 3 two rules that override the rest of the Act o CIR may counteract a tax advantage from a tax avoidance arrangement o DTAs override the Act

Calculating and Paying Tax


BC 1 provides for non-filing taxpayers, filing taxpayers, and filing taxpayers BC 2 persons annual gross income for a tax year is the total of their assessable income that is allocated to the corresponding income year BC 3 - persons annual total deduction for a tax year is the total of their deductions that is allocated to the corresponding income year BC 4 if annual gross income>annual total deductions, = net income. Vice Versa o If theres a net loss, then that can be subtracted from net income for a future year, or make it available to another taxpayer, or use it in other certain ways. BC 5 taxable income = net income-available tax loss BC 6 For filing taxpayers, taxable income x tax rate = tax liability BC 8 income tax liability can be set off against any credits available

Income, Deductions, Timing


BD 1(1) an amount is income of a person if it is their income under a provision in Part C (Income). BD 1(2) exempt income if its exempt under subpart CW. BD 1(3) excluded income if its excluded under CX; and it is not non-residents foreign sourced income o GST (CX 1) o FBT (CX 2 38) BD 1(4) - non-residents foreign sourced income is if the amount is foreign sourced, and the person is a non-resident when it is derived

BD 1(5) income is assessable income unless it is: exempt, excluded, or non-residents foreign sourced income BD 2 An amount is a deduction if a person is allowed a deduction for the amount under Part D (Deductions) BD 3 all income must be allocated to an income year. BD 4(1) all deductions must be allocated to an income year. BD 4(2) a deduction is generally allocated to the income year in which the expenditure/loss in question is incurred. BE 1 tax must be deducted at source from certain kinds of payments. Eg PAYE, RWT (interest, dividends), NRWT (interest, dividends, royalties), FBT BH 1(1) defines DTA BH 1(2) sets out purposes if DTA. Main purpose is to provide relief from double taxation. 0ther purposes: to prevent avoidance and evasion, to facilitate information exchange, to assist in recovering unpaid tax. BH 1(4) tax treaties override domestic law.

Residence and Source


The combination of ss BB 1, BC 2, and BD 1(1) provide that you are obliged to pay NZ income tax if (and only if): o You are resident in NZ. I.e. Persons resident in NZ are obliged to pay NZ tax on their worldwide income o Your income has a NZ source. I.e. income derived from NZ is taxable here whether the person by whom it is derived is resident here it not.

Residence Permanent place of abode


YD 1(1) provides that section YD 1 sets out the rules for determining whether a natural person is a NZ resident for tax purposes. YD 1(2) despite anything else in this section, a person is a NZ resident if they have a permanent place of abode in NZ, even if they also have a permanent place of abode elsewhere. FCT v Applegate [1979] (FCAFC) Permanent place of abode means something less than a permanent place of abode that the taxpayer intends to live for the rest of his life. Material factors for consideration are the continuity and the duration of the taxpayers presence, and the durability of association with the particular place. Case Q55 [1993] (TRA) Permanent place of abode does not require that a dwelling always be vacant and available for the taxpayer to live in. It requires the availability of a place in which to dwell when the taxpayer needs it, but also some durability of connection with a locality. There must be an enduring relationship with NZ. TIB by IRD, July 1995 The material factors to consider are the continuity and duration of their presence in NZ, and the durability of their association with NZ. Generally the longer a person is away from NZ, the less likely it is that their permanent place of abode is NZ The weight attributed to family and social ties varies according to each individuals circumstances. Other factors include personal property, intention and actual actions, miscellaneous like returning to NZ for holidays

Residence 183 day/325 day test


YD 1(3) a person is a NZ resident if they are personally present in NZ for >183 days in total in a 12 month period

YD 1(4) if subsection (3) applies, the person is treated as resident from the first of the 183 days until the person is treated under subsection (5) as ceasing to be a NZ resident YD 1(5) a person treated as a NZ resident only under subsection (3) stops being a NZ resident if they are personally absent from NZ for >325 days in total in a 12 month period. YD 1(6) the person is treated as non-resident from the first of the 325 days until they are treated again as resident under this section. YD 1(7) special rule for employees of NZ govt

Residence of companies
YD 2(1) - Company is resident in NZ if: o Its incorporated in NZ; or o Its head office is in NZ; or o Its centre of mgmt is in NZ; or o The directors, in their capacity as directors, exercise control of the company in NZ, even if the directors decision-making also occurs outside NZ YA 1 director is defined extremely widely including de facto directors, deemed directors and nominee directors De Beers Consolidated Mines Ltd v Howe [1906] (HL) A company resides for the purposes of income tax where its real business is carried on, and the real business is carried on where the central mgmt and control actually abides. Cannot have a situation where a company may have its mgmt and centre of trading in England under the protection of English law, and yet escape the appropriate taxation by the simple expedient of being registered abroad and distributing its dividends abroad.

Source
The significance of source is that non-residents pay NZ tax on income having a NZ source; and NZ residents are entitled to credit for foreign taxes paid on income not having a NZ source. YD 4(1) this section lists the types of income that are treated as having a source in NZ for the purposes of the Act YD 4(2) income derived from a business has a source in NZ if the business is wholly or partly carried on in NZ YD 4(3) income derived by a person from a contract has a source in NZ if it is made in NZ, or wholly or partly performed in NZ. Lovell and Christmas ltd v Commissioner of Taxes [1908] (PC) Issue - whether L liable to pay taxes in NZ on profits derived from sales in England of produce shipped from NZ L argued that no profits or income are received by them in NZ so they should not be liable for NZ taxes; Commissioner argued that the business was conducted in NZ and was liable for taxes. PC held - the business which yields the profit is the business of selling goods on commission in London; the profits received by L are paid to them under the contract of sale effected in London; contract of supply in NZ does not yield any profits and so L is not liable for tax. YD 4(4) income under CE 1 (amts derived in connection with employment) has a source in NZ if the amt is earned in NZ, even if the employer is not a NZ resident. YD 4(5) ACC payments have a source in NZ YD 4(6) pension has a source in NZ if payable by NZ govt YD 4(7) - income derived by a person as the owner of land in NZ has a source in NZ YD 4(8) - payments for the use of, or for the right to use, personal property in NZ have a source in NZ if: o paid by a NZ resident; or o paid by a non-resident, but are deductible by that person for NZ tax purposes YD 4(9) royalties have a source in NZ if...

YD 4(10) - income derived from shares in a company resident in NZ has a source in NZ. YD 4(11)(a) - interest and redemption payments derived from money lent in NZ have a source in NZ. YD 4(11)(b) - interest and redemption payments derived from money lent outside NZ have a source in NZ if either: o the money is lent to a NZ resident (unless the money is used by that person for the purposes of a business carried on by that person outside NZ through a fixed establishment outside NZ); or o the money is lent to a person who is non-resident, if the money is used by that person for the purposes of a business carried on by that person in NZ through a fixed establishment in NZ Securities issued by NZ govt, debentures by local govt and mortgage of land in NZ all are covered under this section. YA 1 interest is defined as meaning any payment for money lent whether periodical or not and however described and calculated but excluding redemption payments; and repayments of money lent. YA 1 defines fixed establishment YD 4(12) - income derived from the disposal of property situated in New Zealand has a source in New Zealand. YD 4(13) beneficiary income YD 4(14) and (15) air and sea transport YD 4(16) general insurance YD 4(17) life insurance YD 4(18) - Income derived directly or indirectly from any other source in New Zealand has a source in New Zealand.

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