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New Zealand law explained for everyone

Income Tax Act 2007

Income - Exempt income

CW 39: Local authorities

You could also call this:

“Local councils don't pay tax on most income, with a few exceptions”

If you’re a local authority, you don’t have to pay tax on most of your income. This is called being ‘exempt’ from tax.

You don’t have to pay tax on money that comes from sinking funds. These are special funds used to pay off debt.

Almost all other money you get as a local authority is also tax-free. But there are a few exceptions:

If you’re acting as a trustee, you might have to pay tax on some money. But if you give that money to someone else who doesn’t have to pay tax on it, then it’s still tax-free.

You might have to pay tax on money you get from certain organisations you’re connected to. These could be council-controlled organisations (except those running hospitals for charity), port companies, or energy companies. But you don’t have to pay tax on rates or dividends from these organisations.

If you run a port, you might have to pay tax on money you make from port-related business activities.

Remember, these rules are quite specific. If you’re unsure about whether you need to pay tax on some money, it’s a good idea to ask an expert for help.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1513263.

Topics:
Money and consumer rights > Taxes
Government and voting > Local councils
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Part C Income
Exempt income

CW 39Local authorities

  1. An amount of income derived from sinking funds relating to the debt of a local authority is exempt income.

  2. Any other amount of income derived by a local authority is exempt income.

  3. Subsection (2) does not apply to an amount of income that a local authority derives as a trustee, other than an amount distributed as beneficiary income to a beneficiary who derives the amount as exempt income.

  4. Subsection (2) does not apply to an amount of income that—

  5. is derived by a local authority from—
    1. a council-controlled organisation linked by ownership or control to the local authority, other than a council-controlled organisation operating a hospital as a charitable activity on behalf of the local authority; or
      1. an organisation linked by ownership or control to the local authority that is a port company, a subsidiary of a port company, or an energy company and that would be a council-controlled organisation in the absence of section 6(4) of the Local Government Act 2002; and
      2. is neither rates nor a dividend.

        1. Subsection (2) does not apply to an amount of income derived by a local authority in its capacity as a port operator from a port-related commercial undertaking. Port operator and port-related commercial undertaking are defined in section 38(4) of the Port Companies Act 1988.

        Compare
        Notes
        • Section CW 39(1) heading: replaced (with effect on 1 April 2008), on , by section 99(1) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
        • Section CW 39(2) heading: replaced (with effect on 1 April 2008), on , by section 99(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
        • Section CW 39(3): amended, on , by section 29 of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
        • Section CW 39(4): replaced, on , by section 57(1) (and see section 57(2) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).