Income Tax Act, 2007: Base Price Adjustments, Deductions, Depreciation, And Tax Liability

• The base price adjustments are done as per the provisions of section EW31 (4) of the income tax act 2007.

The base price adjustments are as follows:

• As per the provisions of section CB 6A of the income tax act 2007, the bright line test will be applicable on person selling the residential land within 2 years from the date of acquisition and is earning profit, then the profit earned on sale of land will be considered as the income of the tax payer and will be taxed accordingly. The two year period under the bright line test starts on the date when the person obtains the legal title in regard to the purchase of the property and will come to end on the date when the person had entered into a valid contract to sale the property. The date of disposal is the date when the person enters into a valid contract to sale the property and if the person does no enter into agreement, then gift date, agreement to sell date, compulsory acquisition date will be considered as date of disposal respectively. The statutory references that that support the answer are CB 6A and CB15B of the income tax act 2007.
• As per the provisions of section CB 7 of the income tax act 2007, the proceeds of sale are assessable for the tax purposes. The land was taken for the framing purpose but the it had been used for the purpose of selling hence it will be accordingly chargeable to tax. The various deductions that are available to Marcus and Jenny are as follows:

1. The amounts are deductible or non-deductible

The amount of expenditure that should be treated as expense for income tax purposes are as follows as per section FA 17 of income tax act 2007:

Thus the amount of $30000 will be deductible during the year ending 31^st march 2017.

• The purchases, closing stock and opening stock are used for the calculation of the cost of sales for the purpose of calculation of net income. The opening stock is added to the purchases and the closing stock is deducted in order to arrive at the cost of sales. The cost of sales is then deducted from the gross income in order to arrive at the gross profit which is then used for calculation of the taxable income as per section BC 4 of the income tax act 2007.
• Yes, Gourmet Grub can value its closing stock at 31^stmarch 2017 at $8600 as per section EB 11 on the basis that it is the market selling price of the stock and the market selling price is less than the cost of the stock but the food store will have to consistently apply the policy every year.
• The stock of spare parts held by a factory for maintaining plant and equipment are treated differently for tax purposes from stock of spare parts held for sale or exchange in the ordinary course of business as the stock of spare parts held for sale is being considered as the trading stock and will be valued accordingly in accordance with the different valuation methods. The stock of spare parts held for maintenance of plant and equipment will not be considered as trading stock and hence will be valued as a non current asset as per section EB 2 of the income tax act 2007.  

The amount of depreciation is calculated using diminishing value method as per section EE14 of the income tax act 2007. The provisions of section EE48 provides for the calculation of depreciation deduction or adjustment on disposal of asset.

Statement showing Benjamin’s income tax liability, residual income tax and terminal tax (or tax refund due) for the year ended 31 March 2017:

• The calculation of the provisional tax liability is done as per section RC 5 of the income tax act 2007. The schedule 3 of the income tax act 2007 specifies the installment dates under the provisional tax liability.

Provisional tax under standard method= $16837+5%= $17679

The amount of provisional tax installment already recorded will be deducted from the next installment to be paid.

The residual income tax for the concerned year is being treated as the provisional tax under installment method. Hence $27000 is provisional tax.

The provisions of section RA 14 are applicable for deciding the installment dates of provisional tax.

• As per provisions of section RC 3 of the income tax act 2007, a person is liable to pay installments of the provision tax, if the person is having liability of residual income tax of more than $2500 at the end of the previous year. The amount of residual income tax is the amount of tax that is required to be paid as per the income tax return deducting other credits such as PAYE. Hence in this case, Keisha is not required to pay provisional tax for the year 2018 as the residual income of last year that is 2017 is less than 2500. Thus in case provisions of section RA 4 and RA 14 will not be applicable on Keisha.
• As per the provisions of section RC 5 GST ratio method can be used for the calculation of the provisional tax liability. The option of calculating the amount of provisional tax by way of GST method can only be used by the persons who are duly registered under the GST scheme and are accordingly filing the return on monthly or two monthly basis. The GST ratio is being calculated by taking ratio of tax to GST supplies and then this amount is accordingly multiplied to the GST supplies for the past two months. Hence in this case, the percentage for calculation will be 7.11%.

• The calculation of the amount of tax that is to be deducted from various payments is as follows:

 
Note:

1. The amount of tax to be deducted will be calculated at the rate of 31.39% as the total annual income is around $60000
2. As June had not provided with the tax code declaration, thus a no notification rate applicable for calculation of PAYE that is 31.39% will be used for the calculation of the tax.

• As per the provisions of section CW29 B of the income tax act 2007, investment is being done in Kiwi schemes as a part of employer contribution. The employer is required to pay minimum cash contribution of 3% of the gross salary and wages. Thus in this case the amount of cash contribution that is to be made will be $3154*3%= $95. If the gross salary of the past year is between $57600 and $84000 then the employee compulsory contribution tax will be levied at the rate of 30%. Hence in this case the income was $78446 of the previous year thus the amount of tax withholding will be $95*30%= $28.
• As per the provisions of section 32E of the income tax act 2007, RWT exemption certificate can be applied in certain situations. The following persons can apply for the exemption certificate:

1. The banks that are registered and the building societies.
2. The trustee companies.
3. The major taxpayers that are having income annually for more than 2 million.
4. The taxpayers that are expecting that there annual gross income in the coming tax year will be more than $2 million.
5. The persons or organization whose main business is to lend the money to common people and to take money by paying interest.
6. The person having accounts of solicitor’s trust.
7. The nominee companies of brokers and solicitors.
8. The organization that are working for charitable purpose.
9. The clubs set for sports purpose.
10. The clubs that are being set for the research purpose.
11. The public authorizes whose income is not chargeable to tax..
12. The organizations working for non-profit purpose and had income amounting to less than $1000 in the last financial year.
13. The tax payers who are expecting that they will be having loss in the tax period and thus will be expecting refund amounting to more than $500 resident withholding tax.

The effect of holding the one is that no resident withholding tax obligations will apply on the person and they will not be required to deduct the tax in course of payment of dividend and interest and hence will accordingly pay.

• As per the provisions of section BE 1 of the income tax act 2007, it is the duty of the person pay interest and dividend to the non resident of the country to deduct the non-resident withholding tax. The amount of withholding tax on dividend paid to company resident in Australia will be $100000*15%= $15000. The amount of NRWT on payment of interest to Romania is $25000*15%= $3750.

Reference:

New Zealand Legislation, 2007, “Income Tax Act, 2007”; Available at: https://legislation.govt.nz/act/public/2007/0097/latest/whole.html#DLM1513398

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