NEW ZEALAND Law and Practice Contributed by: Greg Neill, Fred Ward and Callum Burnett, Russell McVeagh
to shareholders by attaching credits to dividends. The imputation rules derive from the tax policy that a com - pany is taxed as a proxy for its shareholders. The rules address the double taxation that would otherwise occur when profits earned by a company are taxed and those profits are then subsequently used by the company to pay taxable dividends to shareholders. General and Limited Partnerships Partnerships are treated as transparent for income tax purposes, meaning income derived by a partnership and other tax items (for example, gain, expenditure, credit) flow through to its partners (in proportion to their agreed interests in the partnership’s income). Therefore, the income tax rate for income derived by a partnership will be determined in accordance with how each partner is taxed in its own right. For this reason, partnership structures are often used where investors have different tax profiles (for example, non- residents subject to different rates of tax under a DTA, or tax-exempt or lower tax entities). Sole Proprietorships As income derived from a sole proprietorship is taxed directly to the individual, the income tax rate will depend on the individual’s marginal tax rate. Individu - als are subject to taxation at progressive marginal tax rates, with the prevailing maximum rate being 39% (for income in excess of NZD180,000). Look-Through Companies LTCs are generally treated like partnerships for income tax purposes. This means that the income tax rate for income derived by an LTC will be determined in accordance with how each shareholder is taxed in its own right.
carried forward from prior income years or tax losses able to be offset from other companies in the same corporate group. The resulting net amount is the tax - able income. Amounts of income, deduction and loss are deter - mined under the Income Tax Act. Common with other jurisdictions, this may differ from a taxpayer’s account - ing or financial reporting profit, as adjustments may be required for exempt or excluded income and non- deductible expenses. There may be restrictions on when and how losses are used. However, financial reporting standards are relevant for certain rules in the Income Tax Act regarding the recognition of income or expenditure, including New Zealand’s financial arrangements rules applicable to debt instruments (amongst other financial arrangements). In general, income will be allocated to the income year in which the amount is derived. However, spe - cific provisions or timing rules of the Income Tax Act may require the adoption of a particular method for recognising the derivation of income and expenditure, which bring forward or defer the recognition of income The Income Tax Act contains rules providing for research and development (R&D) tax credits. The leg - islative policy is to provide a tax credit as an incentive to a person for performing or contracting for the per - formance of activities to create new knowledge or new or improved processes, services or goods. Eligibility for the credit is generally sector/industry agnostic and focuses on the nature of activities and the types of cost incurred. A 15% tax credit in respect of eligible R&D expendi - ture exceeding NZD50,000 is available to businesses undertaking eligible R&D activities in New Zealand (with 10% of the overall expenditure permitted to consist of activity outside New Zealand). The relevant expenditure must have a sufficient connection with the prescribed R&D activity, and must be “required for” and “integral to” such activity. Examples of expendi - ture generally eligible include salary and wages, appli - or expenditure for tax purposes. 2.2 Technology Investments Research and Development
2. Corporate Tax Regime 2.1 Taxable Profits
For companies, New Zealand income tax is levied on taxable income, being a company’s net income minus any available tax losses. Net income is determined by subtracting annual total deductions from annual gross income. Available tax losses may comprise any tax losses of the company
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