Appendix 3: Exemptions Data

Exemptions of certain income from tax were an important feature of the New Zealand personal income tax system up until the 1970s. A portion of income was exempt from tax for a specified set of circumstances. These included:[24]

• General personal exemption: The first New Zealand income tax exempted the first £300 of income. The level of the general exemption subsequently varied between £200 and £468.
• Dependent wife/husband exemption: Introduced in 1933, the dependent spouse exemption ranged from £50 in 1933-45 to a maximum of £200 in 1960. The exemption was abated against both spouses' incomes, and was in place until at least 1967.
• Child/dependent exemption: Allowances for dependent children were first introduced into the Land and Income Assessment Amendment Act 1913. An exemption of £25 for each child under 16 applied, subject to a household income limit of £425. The rate was increased to £50 per child and the age limit increased to 18 from 1922.
• Housekeeper exemption: From 1933 an exemption applied to widows and widowers (later divorcees and unmarried people) with dependent children. The exemption ranged from a maximum of £50 to a maximum of £200.
• Life insurance exemption: An exemption was given on life insurance premiums in the Land and Income Assessment Act 1891. Premiums were tax deductable up to £50. Contributions to National Provident Fund, superannuation and insurance funds were also tax deductable.

The general exemption was the most significant exemption. Initially, the exemption applied to all taxpayers, but from 1917 until 1935 it abated such that it only applied to incomes below a certain level. From 1936 it applied to all income earners again. Other exemptions were also dependent on income and were abated as income increased. However, we have only been able to account for the impact that abatement of the general exemption had on EMTR_js. Table A1 below sets out the abatement regimes which applied from 1917 to 1935.

From the early-mid 1920s, NZOYBs provide data on the total value of exemptions claimed by size of assessable income, by exemption category, captured via income tax returns filed with Inland Revenue. In the 1920s, exemption data were presented as an aggregate across all classes of taxpayer, but in general exemptions only applied to the incomes of Class I taxpayers (individuals). An exception was an exemption of 5% on the capital value of unimproved value of land from which income was derived, and which also applied to certain registered companies.

Table A2 shows the common form of aggregate exemption data presented in the NZOYB for the 1925/26 income year. It shows that the general exemption made up the majority of exemptions and was predominantly received by low income earners (since the exemption was abated with income). With the exception of land value exemptions, other exemptions also appear to be claimed mainly be those with incomes below £1000.

Data presented in the NZOYB are ‘effective exemptions'. That is, where the exemption amount exceeded assessable income, the allowable exemptions were reduced accordingly. From 1935 the distribution of exemptions by size of income were presented as an average per £100 and from 1948 exemptions distribution data are again presented as total exemptions claimed rather than as averages.