st be valued by a cost valuation method or, where market selling value is lower than cost, may be valued at market selling value. If the inventory is shares, it must be valued at cost. Cost is determined under generally accepted accounting principles. Acceptable cost flow methods are first-in first-out (FIFO) or weighted-average cost. Some valuation concessions are available to small taxpayers.
Capital gains/There is no capital gains tax. However, the income tax legislation specifically includes various forms of gain that would otherwise be considered a capital gain within the definition of “income”.
Taxable income includes gains on the sale of real estate in certain circumstances and on personal property where the taxpayer acquired the property for resale or deals in such property or where a profit-making purpose or scheme can be deemed or imputed.
Intercompany dividends/ Dividends derived from resident companies are exempt where there is 100% common ownership and the same balance date.
Dividends paid by nonresident companies are exempt from income tax but are subject to a dividend withholding payment (DWP) at the corporate tax rate.
The dividend, grossed up by foreign withholding tax and income tax (or deemed income tax) on the dividend payer’s income, is multiplied by the corporate tax rate. Credit is then given for the foreign withholding tax and underlying income tax or deemed income tax.
Resident companies may also keep a memorandum account called a “withholding payment account” (WPA), which is credited with an amount equal to DWP paid.
Withholding payment credits may be attached to dividends distributed.
The foreign investor tax credit (FITC) regime effectively eliminates nonresident withholding tax (NRWT) on fully imputed dividends. The FITC regime provides that total New Zealand tax paid on a nonresident investor’s earnings through a New Zealand company can be limited to 33%. It does not operate by exemption from NRWT. Rather, where a dividend is imputed, the
paying company qualifies for a reduction in its income tax if it pays a supplementary dividend. The amount of reduced company income tax is equal to the supplementary dividend. The combination of reduced income tax plus NRWT on both dividends can result in total New Zealand tax on the earnings of only 33%.
Deemed dividends may arise from transactions between related companies where the transactions are not at market value.
Foreign income/ A New Zealand corporation is taxed on foreign-branch income as earned. Double taxation with respect to all types of taxable income, including interest, rents, and royalties, is avoided by foreign tax credits. Foreign dividends received are exempt from income tax but are subject to the foreign dividend withholding payment.
New Zealand residents are taxed on deemed income derived from an interest in a nonresident company, foreign investment fund, or foreign trust. New Zealand tax is imposed on residents with income interests of 10% or more in certain controlled foreign corporations (CFCs) on the notional share of income attributable to their interest in the CFC. The regime applies to all types of income but does not apply to CFCs resident in “grey list” countries, except where the CFC derives exempt income from carrying on a business outside its country of residence. Grey list countries are Australia, Canada, Germany, Japan, Norway, the United Kingdom, and the Untied States.
The conduit tax relief (CTR) regime provides relief for nonresident investors who invest in non-New Zealand companies through a New Zealand subsidiary (the “conduit” company). The regime is complex but effectively eliminates New Zealand tax on the nonresident shareholder’s share of the
New Zealand company’s conduit income that is not distributed by the New Zealand company. NRWT (generally at 15%) is imposed on dividend income distributed by the New Zealand company to the nonresident shareholder.
Stock dividends/ Bonus issues can be taxable or nontaxable. With a taxable bonus issue, the amount capitalized becomes available for tax-free distribution upon a subsequent share cancellation. With a nontaxable bonus issue, the amount capitalized is not available for tax-free distribution
upon a subsequent share cancellation.
Other significant items-financial instruments/ Income or expenditure (including foreign-exchange gains and losses) from financial arrangements must be recognized on an accrual basis (generally, yield to maturity or other commercially acceptable method). These rules do not apply to the income or expenditure of a nonresident if the financial arrangement does not relate to a business carried on in New Zealand.
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