DEDUCTIONS
Depreciation and depletion/For tax purposes, depreciation of property can be computed either under the diminishing-value method, the straight-line method, or a pooling method. The rates of depreciation depend on the following factors.
1.Type of asset.
2.Whether the asset is acquired new or secondhand.
Taxpayers must use the economic depreciation rates prescribed by the Inland Revenue Department (IRD), together with a 20% uplift in the case of new assets (other than buildings and imported motor vehicles). Fixed-life intangible property (including the right to use land and resource consents)
is depreciable on straight-line basis over its legal life. Any
depreciation recovered on the sale of an asset (up to its original cost ) is taxable in the year of sale.
Entertainment expenditure/ Entertainment expenditure is generally only 50% Deductible; however, entertainment expenditure incurred overseas is fully deductible.
Net operating losses/ Losses may be carried forward indefinitely for offset against future profits, subject to the company maintaining 49% continuity of ownership. There is no loss carryback.
Payments to foreign affiliates/ A New Zealand corporation can claim a deduction for royalties, management service fees, and interest charges paid to nonresident associates, provided the charges satisfy the “arm’s-length principle” which forms the basis of New Zealand’s transfer pricing regime.Taxes/ Fringe benefit tax is deductible, as is goods and services tax
payable on the value of a fringe benefit.
GROUP TAXATION
Companies that are commonly owned to the extent of 66% or more constitute a “group”. Group companies are able to offset losses by election, as well as by subvention payment. A subvention payment is a payment made by the profit company to the loss company and is equal to the amount of losses to be offset. The payment is deductible to the profit company and
assessable to the loss company. Certain companies subject to special bases of assessment (e.g., mining companies other than petroleum extraction companies) are excluded from the grouping provisions. Branches of nonresident companies may be included, provided they continue to carry on business in New Zealand through a fixed establishment.
Groups of resident companies that have 100% common ownership may elect to be subject to the consolidated group regime. The group is effectively treated as a single company, and transfers of assets, dividends, interest, and management fees will generally be disregarded for tax purposes. The group files a single return and is issued a single assessment. Group
members are jointly and severally liable for tax purposes.
Losses incurred by a dual resident company are not available for offset by election or subvention payment.
TAX INCENTIVES
Inward investment/There are no specific tax incentives designed to encourage the flow of investment funds into New Zealand. However, investment is made more attractive by the FITC regime and the CTR regime (see above).
Capital investment/ Investment allowances on fixed assets are not available.
WITHHOLDING TAXES
Resident corporations paying certain types of income are required to withholding tax on gross income, as shown in the table below.
Recipient Dividends Interest Royalties
% % %
Resident corporations 33(1) 33(1) Nil
Resident individuals 33(1) 33(1) Nil
Nonresident corporations and individuals (2) (3) &
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