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LAWCOMM 403 long notes.docx
LAWCOMM_403_long_notes.docx
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LAWCOMM 403 long notes.docx-CONTENTS Tips ...........
LAWCOMM_403_long_notes.docx-CONTENTS Tips ......................................................................................................................................................................................... 4 Introducon ............................................................................................................................................................................
LAWCOMM 403 long notes.docx-CONTENT...
LAWCOMM_403_long_notes.docx-CONTENTS Tips ......................................................................................................................................................................................... 4 Introducon ............................................................................................................................................................................
Page 7
Source principle – you must pay tax on income derived (sourced) from New Zealand even if you are
not resident in New Zealand
o
If you are resident in one country and derive income in another country, and both countries have tax systems
based on residence and source principles, then that income may be doubly taxed – but there are mechanisms
by which relief from double tax is provided for
o
Somemes, it is uncertain whether someone is “resident” or income is “sourced” in a country
Example: you recently moved to another country and earn income from a job there – how long do
you have to remain outside of New Zealand in order to no longer be a resident in New Zealand?
Example: your law firm is in the UK, but you have a client in New Zealand and you come to meet them
and do some work in New Zealand, then go back to the UK and do work there – the work is done in
two different countries, so to what extent is the bill derived from New Zealand?
INCOME
All income is taxable
o
The definion of income is a difficult queson – Parliament has enacted a large number of rules defining what
is and is not income
o
Part C of the ITA defines what “income” is
o
Most of these rules extend the basic meaning of income to cover things that otherwise may not be defined as
income
Difference between capital and revenue receipts
o
A revenue receipt is income and taxable
o
An economic benefit that is a capital receipt is generally not taxable
However, Parliament has greatly extended the definion of income to catch various receipts of a
capital nature (e.g. you are in business as a property developer by buying land, building houses on it
and selling them; this is taxable)
Therefore, the line can somemes be difficult to draw – how many houses do you need to buy and
sale before the proceeds become income, or how long do you have to hold them for the proceeds to
be defined as capital gains?
The most popular rule to determine this is the “bright line test” – if you buy a house and sell
within 5 years without living in it, it is treated as income because the definion of income is
extended by legislaon to include capital gains made on the sale of a house if sold within 5
years of buying it and you haven’t been living in it
General principles are contained in the ITA
Some specific rules are contained in case law:
o
Amounts derived from a business:
These are treated as income unless they are of a capital nature
If of a capital nature, they can sll be caught by one of the rules that extend the definion of income
o
Amounts derived from personal property (non-real property like shares):
Income according to ordinary concepts will be income (e.g. a business of buying and selling shares
would be income)
Also applicable are the rules extending the definion of income to capture the proceeds of sale of
personal property in some circumstances, even if they are otherwise of a capital nature (e.g. buying
shares with the intenon of selling it, even if holding them for a lengthy period of me)
o
Land
Some rules are contained in the bright line rule (secon CB6A)
Other rules have the purpose of extending the definion of income so that it captures proceeds of the
sale of land in various circumstances
o
Employment
Salaries and wages are income according to ordinary concepts
There are other rules dealing with specific things like bonuses, gratuies, use of a company car, stock
opons
o
These examples show that the purpose of a rule should be determined by asking what the taxpayer could do if
the rule did not exist
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