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Spending through the Tax System: Tax Expenditures TPP 09/01

Annex One: possible tax expenditures 

The following table provides a selection of tax expenditures captured under the proposed approach. Sections refer to the relevant sections in the Income Tax Act 2007. The list should be treated as a preliminary cut for the purpose of illustration and is not deemed comprehensive at the point of publication.

Possible Tax Expenditure
Possible Tax Expenditure Section

Payments of interest post-war credits: exempt income

Interest derived by a person under section two of the Income Tax (Repayment of Post-War Credits) Act 1959 of the United Kingdom Parliament is exempt income. 

CW 5

Payments of interest on farm mortgages: exempt income

Fifty percent of the interest that a person derives from a mortgage securing a loan made by a seller of a farm is exempt income if the Rural Banking and Finance Corporation of New Zealand approves the mortgage.

 CW 6

Income of the Governor-General: exempt income

The salary of a person acting as the Administrator of the Government and the salary and allowance of the Governor-General are exempt income under the Civil List Act 1979.

 CW 16

Income for military or police service in operational area: exempt income

When a member of the New Zealand Defence Force (or the police) derives income for serving in an operational area, an operational allowance and any amount that the ministerial committee decides upon is exempt income of the member.

 CW 23

Deferred military pay for active service: exempt income

Deferred military pay that is granted or paid under the Defence Act 1990 to a person for service in the New Zealand armed forces in an active service area is exempt income.

 CW 24

Jurors' and witnesses' fees: exempt income

Fees paid by the Crown to jurors and its witnesses, other than expert witnesses, are exempt income.

 CW 26

Certain income derived by transitional residents: exempt income

New tax residents in New Zealand gain a temporary tax exemption for four calendar years on most foreign-sourced income.

 CW 27, HR 8

Scholarships and bursaries: exempt income

Any scholarship or bursary payment for attendance at an educational institution is exempt income, except for a basic grant or an independent circumstances grant under the Education Act 1989.

 CW 36

Film production grants: exempt income

A grant provided to a company as a large budget screen production is exempt income.

 CW 37

Local and regional promotional bodies: exempt income

The income derived by a charitable association or society is exempt income if it is primarily established for beautification purposes. 

CW 40

Charities: exempt income

Business, non-business and charitable bequests are all exempt income for registered charitable entities, provided the charity is not used for personal benefit. 

CW 41-43

Friendly societies: exempt income

Income derived by a friendly society is exempt income except where the amount is derived from business is beyond the membership or from a company registered as an insurer under the Accident Insurance Act 1998.

 CW 44

Funeral Trusts: exempt income

Interest or a dividend derived by a trustee in trust for a fund is exempt income.

 CW 45

Bodies promoting amateur games and sports: exempt income

Income derived by a club, society or association is exempt income if it is established to promote an amateur game or sport and no funds are used for private pecuniary profit.

 CW 46

TAB and racing clubs: exempt income

Income derived by the New Zealand Racing Board, New Zealand Thoroughbred Racing, Harness Racing New Zealand and the New Zealand Greyhound Racing Association is exempt income.

 CW 47

Income from conducting gaming-machine gambling: exempt income

Income derived by a person that is gross gambling proceeds from gaming-machine gambling is exempt income if the person complies with the Gambling Act 2003.

 CW 48

Bodies promoting scientific or industrial research: exempt income

Income derived by a society or association established mainly to promote or encourage scientific or industrial research is exempt income if the society or association is approved by the Royal Society of New Zealand and no funds are used for private pecuniary profit.

 CW 49

Veterinary services bodies: exempt income

Income derived by a veterinary association, club or society established mainly to promote efficient veterinary services in New Zealand is exempt income, provided that no funds are used for private pecuniary profit.

 CW 50

Herd improvement bodies: exempt income

Income derived by a herd improvement association or society established mainly to promote the improvement of the standard of dairy cattle in New Zealand is exempt income, provided that no funds are used for private pecuniary profit.

 CW 51

Community trusts: exempt income

Income derived by the trustee of a community trust is exempt income.

 CW 52

New Zealand companies operating in Niue 

Dividends derived from or by a company incorporated in New Zealand that derives its income wholly or mainly from Niue is exempt income. 

CW 59

Charitable or other public benefit gifts by company: deduction

A company is allowed a deduction for a charitable or other gift that produces a public benefit when made to a society, institution, association, organisation, trust, or fund set out in schedule 32 of the Income Tax Act 2007.

 DB 41

Farming and aquaculture business expenditure

Deductions granted for improvements and enhancements to land for farming and aquaculture can be expensed rather than treated as capital. 

DO

Forestry expenditure: deduction

Deductions granted for expenditures associated with forestry (ie, improvements or planting costs) can be expensed rather than treated as capital improvements.

DP

Film industry expenditure: deduction

Expenditure incurred acquiring film rights can be deducted over one year for New Zealand films and over two years for non New Zealand films.

 DS

Petroleum mining expenditure: deduction

Petroleum exploration expenditure can be deducted where it generates an asset. Development expenditure is written off over an accelerated seven year period.

DT EJ12

Mineral mining expenditure: deduction

A mining company can deduct all exploration and development expenditure in the year it is incurred.  Other concessionary deductions, the immediate deduction on the purchase of long-lived capital items. 

DU

Non-profit organisations: deduction

Non-profit organisations are allowed deductions for the lesser of $1,000 and the amount that would be the organisation's net income in the absence of any deductions.

 DV 8

Maori authorities - donations: deductions

A Maori authority is allowed a deduction for a donation that it makes to a Maori association as defined in the Maori Community Development Act 1962.  A charitable or other public benefit gift that a Maori authority makes to a society, institution, association, organisation, trust, or fund is deductible.

 DV 12

Housekeeping: tax credit  

A tax credit of up to $310 is granted each year for a person who makes housekeeping or childcare payments in a tax year for the services of a housekeeper.

 LC 6

Charitable or other public benefits: tax credit 

Where donations are made to approved organisations you can claim a tax credit to the value of the lesser of: 33.33% of the total donation you have made; or 33.33% of your taxable income.

 LD

Interest on home vendor mortgages: tax credit

When a person derives interest in relation to a home vendor mortgage a tax credit is available in a tax year on 2% of the interest amount up to a limit of $500. 

LZ

Redundancy payments tax credit:

Redundancy payments can receive a $3600 payment or six cents for every complete dollar of payment.

 ML 2

KiwiSaver superannuation contribution tax exemption:

Employers are exempt from paying employer superannuation contribution tax (ESCT) up to the value of the lesser of: the employee's contribution or 4% of employee's gross pay. 

RD

Accelerated depreciation  

The ability to depreciate capital items faster than their economic life reduces income by a greater amount in earlier years (deferring tax payments). 

Schedule 20 DO 4-5,12 DP 3 DZ 17-18 EE31

Child tax credit

A tax credit of up to $292.50 is granted to children as defined in the Act for each tax year.

LC3

The four working for families' tax credits are not pure tax expenditures. The hybrid tax credits, which are appropriated in the current financial statements, are often paid as a cash welfare payment by Work and Income New Zealand. As these credits are already appropriated, they would not be included in the tax expenditure statement.

KiwiSaver tax credits will be excluded as they a direct payment from the Crown to participants. These credits are appropriated and, despite their name, are more similar to a direct payment than tax expenditure.

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