Exempt and Excluded Income
Exempt income is tax free. This also means that no deductions are allowed on the derivation of exempt income under (DA 2(3)).The following are some examples of exempt income:
- Annuities under life insurance policy (CW4). Annuities from Crown bank accounts (government accounts) (CW30).
- Foreign-sourced interest, if the person was not resident in New Zealand during that period when the interest was payable. (CW7)
- Contribution paid by government to KiwiSaver (CW62)
- Income from conducting gaming-machine gambling (CW48)
- An amount that is derived from voluntary activities as a reimbursement payment to cover actual expense incurred (CW62B). Example: The reimbursement payment for the cost of fuel on the way to do voluntary activity is an exempt income.
- The amount a child received under $2340. The income is none of a PAYE income payment, a resident passive income, a non-resident passive income, a excluded income or a exempt income under another provision. (CW55BB) Refer to Article Children tax credit.
- Reimbursement payment of employee expenditure (CW17). A company may pay reimbursement payment to cover its employees' cost which is related to employment like payments of meals.
- Relocation payments in related to employment (CW17B). Example: A company may pay relocation payments on behalf of its employees in order to relocate them to new working bases. The amount paid must not exceed the actual cost of relocation. The relocation payment is an exempt income for the staff.
- Payment for overtime meal or overtime substance allowance. Working hours beyond the person's ordinary hours of work as set out in their employment agreement are overtime hours. (CW 17C)
- Scholarship and bursary (CW36). Example: A company may pay the textbook fee for its employees, in order to encourage them to re-educate. The payment of textbook is an exempt income for the staffs.
- Jurors or witness fee (CW26). Example: The fee paid by the government to jurors and witness are exempt income for them.
- Overseas pension, and war benefits (CW28).
- Foreign-source income of transitional resident. The income should not be employment income or income from a supply of service. (CW27). Transitional residents are new settlers in New Zealand who do not have an occupation here.
- Maintenance payments to a spouse for child support (CW32). If a couple divorced, one may pay the other another some money to support their children. This money received by another party is maintenance payment.
- Compensation payments including ACC payments (CW34).
For details, refer to ITA 2007 part CW
Excluded income is income that is excluded from income tax because it is taxed through different methods such as GST and FBT.
A fringe benefit represents the benefit provided by an employer to an employee. The fringe benefit is excluded income for an employee. The employer pays tax on this income through fringe benefit tax (FBT).
Examples of fringe benefits include:
- The private use of a motor vehicle (CX6-8)
- Subsidised transport in course of employer’s business (CX9)
- Employment-related loans and service for Member of Parliament (CX10-12)
- Contribution to superannuation schemes and to sick, accident, or death benefit funds or to funeral trusts or life or health insurance (CX13-16)
- Benefit provided to employees who are shareholders or investors or associates of both employees and shareholders (CX17-18)
Other examples of excluded income are as follows:
- Government grants to business in relation to expenditure incurred (CX47). For example: A new start grant for the animal husbandry business.
- A tax credit derived from R&D (CX48D).
- Employer’s superannuation contribution. (CX49)
- Kiwi saver tax credits (CX50)
- Distributions to investors by listed PIEs (CX56C)