Inventory must 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 New Zealand Generally Accepted Accounting Practice (NZ GAAP). Acceptable cost flow methods are first in first out (FIFO) or weighted-average cost. Some valuation concessions are available to small taxpayers.
New Zealand does not have a comprehensive capital gains tax. However, 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.
Inter-company dividends paid between New Zealand resident companies are exempt where there is 100% common ownership.
Dividends from a foreign company
New Zealand’s controlled foreign company (CFC) and foreign investment fund (FIF) regimes apply to tax equity investments in foreign companies. See Income determination in the Individual tax summary for a summary of these rules.
A dividend derived by a company resident in New Zealand from a foreign company is treated as exempt income unless it is:
- a dividend on a fixed rate share or a dividend for which the foreign company has received a tax deduction in its home jurisdiction, or
- a dividend from a portfolio FIF (i.e. interests under 10%) that is exempt from FIF rules (e.g. an interest in an Australian listed company).
Dividends from foreign companies derived by taxpayers that are not companies (other than dividends to which the CFC and FIF regimes apply as described below) are taxable (generally with a credit for any foreign WHTs).
Bonus issues can be taxable or non-taxable. With a taxable bonus issue, the amount capitalised becomes available for tax-free distribution upon a subsequent share cancellation. With a non-taxable bonus issue, the amount capitalised is not available for tax-free distribution upon a subsequent share cancellation.
Shares issued under profit distribution plans (PDPs) are treated as taxable dividends.
All interest derived by a company is income. The financial arrangement rules may require income for tax purposes to be recognised on an accrual basis. When this is not required (because the person is classified as a 'cash basis' person), interest income is recognised as and when it is received.
All royalty payments derived by a company are income. Royalty income includes payments for the supply of know-how. It also includes a payment of any kind derived as consideration for a copyright, patent, plant variety right, trademark, design or model, plan, and secret formula.
Other significant items
The taxation of debt and debt instruments is governed by the financial arrangements rules, which are a specific set of timing rules. Income or expenditure (including foreign exchange gains and losses) from financial arrangements must be recognised on an accrual basis (generally, yield to maturity or other commercially acceptable method). On maturity or disposal, holders of financial arrangements are required to calculate a 'base price adjustment' (BPA). A BPA is a wash-up calculation that brings to tax all income and expenditure arising for a taxpayer in relation to a financial arrangement to the extent to which such income has not already been subject to tax or such expenditure deducted.
These rules do not apply to the income or expenditure of a non-resident if the financial arrangement does not relate to a business carried on in New Zealand (although note the indirect application of the financial arrangements rules in calculating WHT on related-party loans into New Zealand in certain circumstances in the non-residents financial arrangements income [NRFAI] regime).
A New Zealand corporation is taxed on foreign passive income as earned (other than income deemed to arise under the CFC and FIF rules). Double taxation with respect to all types of taxable income, including interest, rents, and royalties, is avoided by the recognition of foreign tax credits.
New Zealand does not offer specific tax deferral rules.