Income Tax

Question 1: Income Tax Act 2007

(a) What does this mean?

Net income or loss is calculated as total "assessable income" less total "deductions".

How does this affect taxpayers?

All sources of a resident's income are taxed together using the same tax rate scale.

(b) Why progressive tax?

It is thought fair that people with the financial ability are taxed at a higher rate (contribute more to the money reinvested into society) than those who lack financial capacity.

(c) The effective tax rate is the actual income tax paid divided by net taxable income before taxes and is expressed as a percentage.

Because the tax rate varies dependant on the level of income earned (i.e. is progressive) the tax rate scale might not give a true indication of the effective tax rate of NZ as the rate cannot be specifically identified as it will be different for each individual/ organisation.

Question 2: Tax Residency

(a) The concept of residency is important to the NZ income tax regime as it determines whose income should be taxed and whose shouldn't.

(b) Implications:

* Could influence depletion in NZ's resources -as NZ's resources are being used to generate the income but not being redistributed into the NZ community (i.e. in the form of tax).

* Increase the numbers that do non-residency overseas trading in NZ - which could lead to a further depletion of resources

* Encourage people to leave NZ (become a non-resident) as they can still operate a business within NZ without being taxed leading to a depletion in NZ's human resources.

Advantages:

* Encourages non residents to invest more in NZ

* May broaden NZ's society - encourage introduction of new business'/organisations

* The income earned from the investment may override the tax lost.

Question 3: Assessment and payment of Income Tax

(a) It stops people from spending their tax money and ensures taxes are collected. Benefits the taxpayer - more efficient.

(b) Issues: hard to estimate tax for the year. Complicated provisional tax rules that are based on previous earnings. An accountant will be needed to decipher and they face the risk of UOMI rates on underestimation/underpayments.

Fairness: No, it should be made simpler