What is income?
The concept of income
1. A large component of tax revenue is from income tax on individuals - $33,910m
(42%) in 2017 was from income tax from individuals compared to $19,508m
(24%) collected in GST and $12,629 (16%) in company tax.
2. Understanding the concept of “income” is key to understanding the application of
income tax laws.
3. A Framework for the terms and concept of income - is provided in Table 3.1 on
page 80
4. Note the terms: income, income under ordinary concepts, exempt, excluded,
assessable, and taxable income.
5. Charging provision: s AA1 ITA 2007
Key statutes
● The Income Tax Act 2007 (ITA 2007) imposes the obligation to pay tax on
taxable income
● The Tax Administration Act 1994 (TAA 1994) provides for the assessment,
qualification, and collection of that tax
● Both these acts are contained in New Zealand Taxation 2020: Legislation
Handbook.
● Income tax is payable on taxable income
● As income tax deals primarily with income, it would be reasonable to expect a
clear definition of income in ITA 2007.
Income Tax Act 2007 (ITA 2007)
1. S AA 1: The main purposes of this Act are:
a. To define, and impose tax on, net income; and
b. To impose obligations concerning tax; and
c. To set out rules for calculating tax and for satisfying the obligations
imposed
2. S CA 1: Amounts specifically identified
a. An amount is the income of a person if it is their income under a provision
in this part
b. An amount is also the income of a person if it is their income under
ordinary concepts.
Classification of income under ITA 2007
1. Income listed in Part C - s CA 1(1)
1
, 2. Income under Ordinary Concepts - s CA 1(2)
3. Exempt income - sub-pt CW
a. See Legislation handbook and p.105 - 111
4. Excluded income - sub-pt CX
a. See Legislation handbook and p.11 - 114
Income listed in Part C - s CA 1(1)
Seven general categorises of income are specifically defined in part C of ITA 2007
1. Income from business, trade-like activities, schemes for profit, personal property,
land
a. Sub-pt CB
2. Income from holding property
a. Sub-pt CC (leases, rent) and sub-pt CD(dividends)
3. Employment income
a. Sub-pt CE
4. Income from living allowances, foreign superannuation, compensation and
government grants
a. Sub-pt CF
5. Income from voluntary activities
a. Sub-pt CO and s CW 62B
6. Income from portfolio investment entities
a. Sub-pt CP
7. Attributed controlled foreign company income and foreign investment fund
income
a. SS CQ1-CQ3 and ss CQ4 - CQ6
Types of income
There are different types of income for tax purposes:
● Employment income - PAYE
● Business income - drawings (PAYE) or company tax
● Income derived from the sale of personal property and land
● Income derived from investments e.g., dividends (Imputation Credits; RWT (tax
withholding on dividends), rent, interest (RWT on interest).
● Trust and beneficiary income - only taxable for those who receive the trust
income, but the trust and beneficiary itself is not taxable.
● Agricultural income
2
The concept of income
1. A large component of tax revenue is from income tax on individuals - $33,910m
(42%) in 2017 was from income tax from individuals compared to $19,508m
(24%) collected in GST and $12,629 (16%) in company tax.
2. Understanding the concept of “income” is key to understanding the application of
income tax laws.
3. A Framework for the terms and concept of income - is provided in Table 3.1 on
page 80
4. Note the terms: income, income under ordinary concepts, exempt, excluded,
assessable, and taxable income.
5. Charging provision: s AA1 ITA 2007
Key statutes
● The Income Tax Act 2007 (ITA 2007) imposes the obligation to pay tax on
taxable income
● The Tax Administration Act 1994 (TAA 1994) provides for the assessment,
qualification, and collection of that tax
● Both these acts are contained in New Zealand Taxation 2020: Legislation
Handbook.
● Income tax is payable on taxable income
● As income tax deals primarily with income, it would be reasonable to expect a
clear definition of income in ITA 2007.
Income Tax Act 2007 (ITA 2007)
1. S AA 1: The main purposes of this Act are:
a. To define, and impose tax on, net income; and
b. To impose obligations concerning tax; and
c. To set out rules for calculating tax and for satisfying the obligations
imposed
2. S CA 1: Amounts specifically identified
a. An amount is the income of a person if it is their income under a provision
in this part
b. An amount is also the income of a person if it is their income under
ordinary concepts.
Classification of income under ITA 2007
1. Income listed in Part C - s CA 1(1)
1
, 2. Income under Ordinary Concepts - s CA 1(2)
3. Exempt income - sub-pt CW
a. See Legislation handbook and p.105 - 111
4. Excluded income - sub-pt CX
a. See Legislation handbook and p.11 - 114
Income listed in Part C - s CA 1(1)
Seven general categorises of income are specifically defined in part C of ITA 2007
1. Income from business, trade-like activities, schemes for profit, personal property,
land
a. Sub-pt CB
2. Income from holding property
a. Sub-pt CC (leases, rent) and sub-pt CD(dividends)
3. Employment income
a. Sub-pt CE
4. Income from living allowances, foreign superannuation, compensation and
government grants
a. Sub-pt CF
5. Income from voluntary activities
a. Sub-pt CO and s CW 62B
6. Income from portfolio investment entities
a. Sub-pt CP
7. Attributed controlled foreign company income and foreign investment fund
income
a. SS CQ1-CQ3 and ss CQ4 - CQ6
Types of income
There are different types of income for tax purposes:
● Employment income - PAYE
● Business income - drawings (PAYE) or company tax
● Income derived from the sale of personal property and land
● Income derived from investments e.g., dividends (Imputation Credits; RWT (tax
withholding on dividends), rent, interest (RWT on interest).
● Trust and beneficiary income - only taxable for those who receive the trust
income, but the trust and beneficiary itself is not taxable.
● Agricultural income
2
