Introduction: Understanding the Importance of Taxation in New Zealand

Taxation is an essential aspect of any country’s economy, and New Zealand is no exception. Taxes are the primary source of revenue for the government, which is then used to fund public services such as healthcare, education, and infrastructure. In New Zealand, taxes are collected by the Inland Revenue Department (IRD), which is responsible for ensuring that everyone pays their fair share.

Despite the importance of taxes, there are several myths surrounding taxation in New Zealand. These myths can lead to misunderstandings and even result in people not paying their taxes correctly. In this article, we will debunk the top five tax myths in New Zealand and provide accurate information to help you understand your tax obligations.

Myth #1: I Don’t Need to Pay Taxes if I Earn Below the Tax Threshold

One of the most common tax myths in New Zealand is that you don’t need to pay taxes if you earn below the tax threshold. The tax threshold is the amount of income you can earn before you start paying income tax. In New Zealand, the tax threshold is $14,000 per year.

While it is true that you don’t need to pay income tax if you earn below the tax threshold, you still need to pay other taxes such as GST (Goods and Services Tax) and ACC (Accident Compensation Corporation) levies. GST is a tax on goods and services, and ACC levies are a tax on income that goes towards funding the country’s accident compensation scheme.

It’s also important to note that if you earn below the tax threshold but have other sources of income, such as rental income or investment income, you may still need to pay income tax on that income.

Myth #2: I Can Claim Anything as a Tax Deduction

Another common tax myth in New Zealand is that you can claim anything as a tax deduction. While there are many legitimate tax deductions that you can claim, such as expenses related to running a business or earning income, there are also many expenses that you cannot claim.

For example, you cannot claim personal expenses such as clothing, food, or entertainment, even if they are related to your work. You also cannot claim expenses that are not directly related to earning income, such as the cost of commuting to work.

It’s essential to keep accurate records of your expenses and only claim legitimate deductions. If you claim expenses that you are not entitled to, you could face penalties and interest charges.

Myth #3: I Can Avoid Paying Taxes by Investing in Property

Investing in property is a popular way to build wealth in New Zealand, but it’s a myth that you can avoid paying taxes by investing in property. While there are tax benefits to owning property, such as being able to claim deductions for expenses related to the property, you still need to pay taxes on any income you earn from the property.

If you rent out a property, you need to pay income tax on the rental income you receive. If you sell a property, you may need to pay tax on any capital gains you make. It’s essential to understand your tax obligations when investing in property and seek professional advice if you’re unsure.

Myth #4: I Don’t Need to Declare Income Earned from Side Hustles

With the rise of the gig economy, many people are earning income from side hustles such as driving for Uber or selling goods online. However, it’s a myth that you don’t need to declare this income to the IRD.

If you earn income from a side hustle, you need to declare it on your tax return and pay any taxes owed. Failure to do so could result in penalties and interest charges. It’s essential to keep accurate records of your income and expenses related to your side hustle to ensure you’re paying the correct amount of tax.

Myth #5: I Can’t Afford to Hire an Accountant to Help with My Taxes

Many people believe that hiring an accountant to help with their taxes is too expensive and not worth the cost. However, hiring an accountant can actually save you money in the long run by ensuring you’re claiming all the deductions you’re entitled to and avoiding penalties and interest charges.

There are also many affordable options for getting help with your taxes, such as using tax software or seeking advice from a community tax clinic. It’s essential to understand your options and seek help if you’re unsure about your tax obligations.

Conclusion

Understanding your tax obligations is essential in New Zealand, and it’s important to debunk the myths surrounding taxation to ensure you’re paying your fair share. By understanding the tax threshold, legitimate deductions, and your obligations when earning income from side hustles or investing in property, you can avoid penalties and interest charges and ensure you’re contributing to the country’s economy. Seeking professional advice or using affordable tax software can also help you navigate the tax system and save money in the long run.