New Zealand: Domestic Corporate Taxation
Calculation of Taxable Base
Taxable income includes income from business activities and the profits of non-resident subsidiaries.
There is no capital gains tax in New Zealand, but gains on the sales of property can be taxable if the seller is a dealer in property, purchased the land for resale, or the property was subject to development.
Dividends received from other resident companies are included in taxable income unless they have been wholly “franked” under the New Zealand imputation system, under which companies that have paid company tax in New Zealand pass on to their shareholders an equivalent 30% “franking” credit for the tax paid on profits when distributing those profits.
Income received from other countries is taxable, subject to the availability of tax credits (whether for corporate income or withholding taxes) under double taxation treaties. Credits are limited to the amount of tax that would have been payable in New Zealand.
However, all New Zealand-resident companies that receive dividends from an overseas company must deduct a withholding payment from the dividend and pay it to the IR. This payment is called a foreign dividend payment.
To enable New Zealand-based businesses to compete more effectively in foreign markets, with effect from the 2010 income year, if income is received from a controlled foreign company (CFC) in which at least a 10% income interest is held, there is no liability for tax as long as the CFC is involved in “active business”, such as manufacturing, distribution or sales. If not, income tax is payable on the company’s proportionate share of passive income only.
CFCs must be tested to determine if they are active businesses. A CFC will be considered “active” during an accounting period if its passive income amounts to less than 5% of its gross income.
Consideration is also being given to extending that tax exemption also to non-portfolio foreign investment funds (FIFs), in which New Zealand companies are not the controlling partner. No income would be taxable from income interests of more than 20% in FIFs that have passive income of less than 5% of their total gross income.
Interest incurred by a company is normally tax deductible. However, thin capitalisation rules apply to non-resident controlled groups and deny an interest deduction where a taxpayer's debt/asset ratio exceeds 75%, or 110% of its worldwide ratio.
Normal business expenses are deductible from income. A company can carry forward a net loss from one income year against the assessable income of future years, subject to a 49% continuity test of shareholder voting interest.
A 15% tax credit on qualifying research and development expenditure was introduced for the 2009 income year, but was rescinded from 2010 onwards.
An income equalisation scheme is available to allow farmers, fishers and foresters, who are eligible taxpayers, to even out fluctuations in income by spreading their gross income from year to year.