Comparing Income Tax: Australia And New Zealand

Income tax and Capital Gain Tax rates for non-resident individuals

Income Tax in Australia is imposed by the federal government on the income earned by the individuals and companies. On individuals, the income tax is imposed at progressive rates while in the case of companies, it is levied on either of two rates prescribed in this behalf. Income tax is the most significant source of revenue for the government and it is collected by the Australian Taxation Office.

The Income tax is imposed by Income Tax Assessment Act 1997 which is rewritten from the previous version Income Tax Assessment Act 1936. There are three categories of assessable incomes for individual taxpayers viz. personal earnings like salary and wages, capital gains and business income. The taxable income of individuals is taxed at progressive rates ranging from 0 to 45% along with the Medicare levy of 2%. The income earned by companies is taxable at 27.5% or 30% which is dependent upon the annual turnover. Capital gains are subject to tax at the point of gain which is decreased by 50% in case if the capital asset was held for 1 year prior to selling.  The financial year runs from 1^st July to 30^th June of the following year.

So, in this assignment the various aspects of   Income Tax Assessment Act 1997 of Australia and Income Tax Act 2007 of New Zealand would be stated along with explaining the various taxation treaties, International laws and Income tax rulings issued by the Australian Taxation Office in reference to case laws.

The Medicare levy of 2% shall not apply to nonresidents and they are not entitled to low-income tax offset.

Here in the given case, the investor has earned $90,000 AUD per year on Pay- As-You-Go (PAYG) basis along with receiving a fringe benefit in the form of car and parking from his employer. He has a moderate wealth with investments in share and property. The FBT is payable at the rate of 45%.

In the case law of Harding v FCT [2018] FCA 837, it was held that in order to prove to be a nonresident, the individual should satisfy the Resides Test and Permanent place of abode test.

In the case of Applegate v Federal Commissioner of Taxation [1912] VicLawRp 78; (1978) 18 ALR 459, the court decided that the word resides is not a term which denotes and with defined boundaries.

In Australia, the income tax is collected by withholding tax known as Pay-As-You-Go (PAYG). For individuals who have a single job, the taxable amount is almost equal to the amount due before deductions are applied at the end of the year. The inconsistencies and deductions are declared in the annual tax return and would form a part of the refund which shall follow after the yearly assessment or amount can also be reduced which is payable after assessment. So he shall be charged at the rate of 32.5c for each $1 and tax rate would be 32.5%.

Income Tax rulings issued by Australian Taxation Office and International treaties executed by Australia with various countries

Also the net capital gain is included in the taxable income of taxpayer and it is taxed at a marginal rate in the year the capital gain taxable event arises. Hence the investor, while selling the asset should take the selling price and deduct the associated costs and original price from it. The residual amount is capital gain or loss. If the asset is held for more than 12 months, the deduction of 50% should be applied to the net capital gain provided that the indexation method does not apply.

Tax treaties are bilateral agreements between two countries and Australia has tax treaties with more than 40 countries including New Zealand. With New Zealand, it has entered International Tax Agreements Amendment Bill (No 2) 2009 which was in force from 2010.  

These tax treaties are also referred to as double tax agreements (DTA). They help in preventing the double taxation and fiscal dodging and assist in fostering cooperation between Australia and other international tax authorities through the enforcement of respective tax laws.

In the case law of SARS v Van Kets [2012] JOL 28416 (WCC), it was held that the purpose of exchange of information is to make sure that the resident of Australia does not escape from the tax which is raised in South Africa.

In A v Commissioner of Inland Revenue [2017] NZTRA 08, it was held that the primary basis for assessment by the commissioner was income under ordinary concepts. The authority therefore found that in the given case there were certain isolated transactions of international money transfers and purchases which had an insufficient link with the disputes , so it disallowed  the amounts.

So, with respect to tax treaties with New Zealand, it would help the investor by reducing the double taxation caused by overlapping tax jurisdictions. In this case, the income tax and the fringe benefits tax is levied by the federal law of Australia to the investor who is a nonresident and originally resides in New Zealand. So, it would help him in resolving the dual claim in relation to his residential status and source of income.

The Australian Taxation Office publishes its views on the transactions of Commonwealth taxation laws which can be in the form of authoritative interpretative guidance and rulings and the decision impact statements on the decisions of the court and tribunal. The system of taxation rulings permits the commissioner to make the rulings binding which must be honored by the Commissioner. The taxpayer can rely on the ruling and he cannot be penalized by the ATO, even if later on the views in the rulings are found to be incorrect. The rulings include public and private rulings. The former includes the advice issued by the ATO for explaining the application of taxation laws to taxpayers and include- Income Tax Rulings, Taxation rulings etc. while the latter include advice to a particular taxpayer for specified arrangements.

Taxation Law of New Zealand

Private rulings may be later converted into public rulings to provide guidance to others known as interpretive decisions. Lastly, oral advice are given on the simple matters related to taxation affairs of the individual taxpayers.

In New Zealand, the prevailing legislation of income tax is the Income Tax Act 2007. The tax levying authorities are Inland Revenue Department. The Tax Administration Act 1994 administers how Inland Revenue Department administers the legislation of tax. In New Zealand, there is no capital gain tax. Some gains such as profits on the sale of patent rights and speculation in property transactions are deemed to be income under the capital gain category. The residents are subjected to tax on income earned internationally . So, the investor would be taxed on the income earned in Australia but due to Double Taxation Agreements, he would not be taxed in New Zealand.

The employees should pay the earner’s levy to cover the cost of no work-related injuries. The earner’s levy is payable on wages and salary along with any other income subjected to Pay-As-You-Go (PAYG). The levy is applicable at the rate of 1.39% and payable up to the income of $124,053.  Employees are liable to pay fringe benefits tax (FBT) on the benefits given to employees along with the salary or wages. There are various methods which are available for calculation of FBT liability comprising of an option to pay a flat rate of 64% due to all benefits provided. The financial year for the individual taxpayers in New Zealand starts from April to March.

In Australia, the tax rates are 32.5-34.8% whereas in New Zealand the tax rates are 20-33%, so the investor should reside in New Zealand. Also, there is a fringe benefits tax of 64% in New Zealand while it is charged at the rate of 45% in Australia.  

But the investor should reside in his home country i.e. New Zealand because it is much more beneficial to him as compared to Australia.

Conclusion 

Hence to conclude, it can be said that the taxation system of Australia and New Zealand is that in both of them, the residents are taxed on the income earned worldwide and the nonresidents are taxed on the income earned in both the countries. The income year in Australia starts from 1 July to 31 June and in New Zealand, the income year is from 1 April to 31 March.  

Although both the countries have similar taxation systems there is a difference between the slab rates, so the investor should reside in New Zealand from the point of view of taxation levied.

References

OECD  ,OECD Model Tax Convention on Income and on Capital (2014 Condensed Version) and key Tax Features of Member Countries 2016 (OECD the Netherlands,2016)

PWC, Australia: Did becoming a nonresident just become harder?( 20 June 2018)< https://www.pwc.com.au/tax/taxtalk/assets/alerts/australia-becoming-a-non-resident-just-became-harder-20jun18.pdf>

Australian Government :Australian Taxation Office ,Decision Impact Statement(n.d.)< https://law.ato.gov.au/atolaw/view.htm?docid=%22LIT%2FICD%2F2013%2F4861-2013%2F4862%2F00001%22>

NAB, Understanding Capital Gains And Tax( n.d.)< https://www.nab.com.au/personal/learn/managing-your-debts/capital-gains-tax>

Australian Government : The Treasury , Income Tax Treaties(n.d.) < https://treasury.gov.au/tax-treaties/income-tax-treaties/ >

Parker Hermione , Instead of the Dole: An Enquiry into Integration of the Tax and Benefit Systems(Routledge London, 2018)

Murray Matthew management. and Pateman Carole , Basic Income Worldwide: Horizons of Reform(Palgrave Macmillan,2012)

Deloitte ,International Tax New Zealand Highlights 2018(n.d.)< https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-newzealandhighlights-2018.pdf>

PWC, New Zealand Individual – Taxes on personal income(2018)< https://taxsummaries.pwc.com/ID/New-Zealand-Individual-Taxes-on-personal-income >

Inland Revenue ,Comparing New Zealand and Australia’s income tax systems(2018) <https://www.ird.govt.nz/international/business/ausnz/comp-inctax/comp-income-tax.html >

Joumard Isabelle , Pisu Mauro and Bloch Debra , Less Income Inequality and more Growth – Are They Compatible? Part 3. Income Redistribution via Taxes and  transfers Across OECD Countries(2012)< https://www.oecd-ilibrary.org/docserver/5k9h296b1zjf-en.pdf?expires=1537088458&id=id&accname=guest&checksum=338A4D3D97FA231AB0A38CF24412F32A>

Higgins Timothy, Income Contingent Loans: Theory, Practice and Prospects (Routledge London, 2014)

Order an Essay Now & Get These Features For Free:

Turnitin Report

Formatting

Title Page

Citation

Outline

Place an Order