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BC 8: Satisfaction of income tax liability
or “How tax credits are used to pay your income tax”
You could also call this:

“Different types of income and how they're taxed in New Zealand”

When you earn money, it’s called income. Part C of the Income Tax Act 2007 explains what counts as income.

Sometimes, you don’t have to pay tax on some of your income. This is called exempt income. You can find out what income is exempt in subpart CW or CZ of the Act.

There’s also something called excluded income. This is income that’s not counted for some tax purposes. It’s described in subpart CX or CZ. But if you’re not living in New Zealand, some of your overseas income might not be excluded income.

If you’re not living in New Zealand, some of your income from overseas is called non-residents’ foreign-sourced income. This applies if:

  1. The money comes from outside New Zealand
  2. You don’t live in New Zealand when you get the money
  3. It’s not income that a non-resident trustee gets (there’s a special rule for this in section HC 25(2))

Lastly, there’s assessable income. This is the income you need to include when working out your total income for the year. It’s all your income except for exempt income, excluded income, and non-residents’ foreign-sourced income.

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Next up: BD 2: Deductions

or “Lowering your tax bill with allowed deductions”
Next

Part B Core provisions
Income, deductions, and timing

BD 1Income, exempt income, excluded income, non-residents' foreign-sourced income, and assessable income

  1. An amount is income of a person if it is their income under a provision in Part C (Income).

  2. An amount of income of a person is exempt income if it is their exempt income under a provision in subpart CW (Exempt income) or CZ (Terminating provisions).

  3. An amount of income of a person is excluded income if—

  4. it is their excluded income under a provision in subpart CX (Excluded income) or CZ; and
    1. it is not their non-residents' foreign-sourced income.

      1. An amount of income of a person is non-residents' foreign-sourced income if—

      2. the amount is a foreign-sourced amount; and
        1. the person is a non-resident when it is derived; and
          1. the amount is not income of a trustee to which section HC 25(2) (Foreign-sourced amounts: non-resident trustees) applies.

            1. An amount of income of a person is assessable income in the calculation of their annual gross income if it is not income of any of the following kinds:

            2. their exempt income:
              1. their excluded income:
                1. their non-residents' foreign-sourced income.

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