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Are personal loans considered as a taxable income?

03 May 2021

New Zealand’s tax scheme is, on the whole, rational with few loopholes and benefit both earnings and investments. It has been recognised globally by US-headquartered firm The Tax Foundation, which ranked New Zealand's overall tax regime second in the developing world for competition in 2019 and fourth for individual (personal) income.

Everyone in New Zealand must pay tax on their earnings, whether they are individuals, businesses, or organisations. The government, through Inland Revenue, uses taxation to fund initiatives that benefit all New Zealanders.

Are personal loans considered as a taxable income?

Personal loans are generally not taxable as wages. You do not have to pay taxes on a personal debt until it is gifted or cancelled and you have paid it off in full. The debt balance does not earn interest when you take a personal loan. Loans are temporary, and until you’ve paid them along with the interest, you haven’t increased your equity or profits with that money.

Taking out a personal loan also has no effect on your income. This is one of the reasons why personal loans are often considered effective as a financial option. You may apply for a loan, get accepted, and have the money deposited into your account in less than a day, with no need to document it at the end of the financial year.

Personal loans not tax-deductible because the loan itself is not taxable profits. Hence, personal loan taxes are exempted by the NZ government. Although certain types of loans, such as student loans or corporate loans, are tax-deductible, personal loans are not.

Is cancellation of debt taxable income?

This is where the tax on the debts becomes a little more complex. Your lent money may not be taxable revenue, but loans may be repaid on occasion and for a variety of reasons. When your mortgage is repaid (also known as cancellation of debt), your borrowing money becomes gifted money, and gifted money may be used to pay taxes.

If you gave money to a relative or friend and then decided to forgive the debt, the close friend or family member might write off the money as an act of love or kindness.  Although this is acknowledged among family members, it is not acknowledged amongst borrowers and personal loan firms. When your mortgage is repaid, your loan will become taxable income.

What is considered as taxable income?

  • All of the income you earn in New Zealand and, in some circumstances, from abroad, is included in your salary. The amount of tax you pay is determined by your total (before-tax) revenue from all sources.
  • Income from work
  • Before your employer transfers your salary, it will deduct PAYE tax from your salary or earnings and remit it to Inland Revenue on your behalf.

Inland Revenue automatically calculates how much personal tax you must pay. However, some people are required to file an individual tax return (IR3) in order to declare their income.

An IR3 is a document that shows how much money you made during the tax year (1 April to 31 March). This includes money received from various sources, such as pay and benefits, foreign earnings, superannuation, savings, and rental income.

What source of income from work is taxed?

  • Wage and income
  • ACC compensation for lost earnings
  • Any incentive bonuses are charged accordingly, depending on whether they are received as a lump sum or daily instalments
  • Allowances charged by the employer under such cases, such as transport, lodging, or relocation costs
  • Your salary from a job you did in New Zealand with a foreign employer

If you benefit financially in any way whilst in New Zealand, you must have an IRD number. You will be charged at the highest possible rate if you do not have an IRD number. It's easy to register online.

Casual and contract work

You are responsible for paying tax on a contract or casual employment involving cash positions, underhanded payments and self-employment profits.

Your employer can subtract tax from your contract or casual salary payments in certain situations. These are known as scheduler fees. You will usually receive scheduler fees if you are working as a contractor with a recruiting company (a company that hires you to other companies), or you do any of the jobs listed at the bottom of IR's IR330C form.

Income from benefits

Many incentives are taxed when you collect them. These include NZ Superannuation and the Veteran's Pension, as well as the personal allowance you get if you receive the Residential Care Subsidy or Hospital Rate Jobseeker Support, student loans, sole parent support, and others. 

Income from assets and investments

You must pay tax on all your assets and investments, including:

  • Investments in New Zealand or abroad, such as your bank account or KiwiSaver
  • Rent allowance paid to you by tenants, boarders, or from the rental of a vacation home
  • Māori Authority distributions, such as purchasing property at a reduced price from the authority
  • Gain by selling fixed assets under certain cases — for example, if you sell a property during a relevant brightline span that is not exempt from the brightline property laws, or financial assets such as equipment that you have declared impairment on


While personal loans are not taxable or considered income, you still need to pay tax on other sources of your income. Even student and business loans are not exempted from the taxpayer’s list. 

As a New Zealand citizen, you need to abide by the income tax rules whether you are working on a job, a contract, or run an independent business altogether. 

For more details, you can always check out Inland Revenue’s website to find out more.