How to Reconcile Accounting Profit to Taxable Income in NZ (CA ANZ Tax Case Study)
To reconcile accounting profit to taxable income in NZ, start with the profit before tax in the accounts, add back items expensed but not deductible this year, deduct items taxable or deductible but missing from the accounts, and show every nil adjustment with a one-line reason. The result is taxable income, supported by a working for each category.
You have a ceramics company with a March balance date, nine categories to adjust, a dividend to allocate and an ethics question about a donation. That is the shape of the CA ANZ Tax (NZ) Assessment 1 case study set in Term 4 2026, worth 40 marks. Most students lose marks on process, not arithmetic.
Want to see the layout before you start? Our TAXNZ model-answer extract works four of the nine items in a table, and it is a reference, not something to hand in.
What the case study actually asks
The brief gives you a close company, a 31 March balance date, GST on an invoice basis and an accounting profit of $486,000. Task 1 (25 marks) asks for the reconciliation plus a short explanation of six named categories. Task 2 (8 marks) is a final dividend. Task 3 (7 marks) is a donation, with a tax part and an ethics part.
One line in the brief shapes everything: the owners prefer to minimise taxable income. Where the law gives you a genuine choice, take the option that lowers it and say why. Where it does not, say so. Do not shade the answer to please the owners.
How to reconcile accounting profit to taxable income in NZ
To reconcile accounting profit to taxable income, work from the accounts to the tax rules, one item at a time. Each item gets the accounting entry, the tax rule, the arithmetic and the signed adjustment. Unexplained totals score badly even when the final number is right.
- Write the accounting profit before tax as your opening line.
- List every category, including the ones that need no adjustment.
- State what the accounts already include for each one.
- Name the tax rule and the legislation or Inland Revenue guidance you rely on.
- Calculate the tax figure, then the difference from the accounts.
- Add or deduct, keeping a running subtotal.
- Finish with taxable income and a one-line check that the signs make sense.
Timing and permanent differences you will meet
A timing difference reverses in another year. A permanent difference never does. Naming which one you found shows the marker why the adjustment exists.
| Item | Type | What to check |
|---|---|---|
| Depreciation | Timing | Tax rate and method, whole months from when the asset was available for use, no depreciation in the year of sale |
| Loss or gain on selling an asset | Timing | Compare the sale price with adjusted tax value, not accounting carrying amount |
| Bad debt | Timing | The date the debt was written off, not the date it went bad |
| Accrued fees for work not yet done | Timing | Deductible when the service is performed |
| Prepaid service contract | Timing | Section EA 3 and the exceptions in Determination E12 |
| Lease incentive received by a tenant | Timing | Spread by month over the lease under ss CC 1B and EI 4B |
| Private element of a mixed trip | Permanent | Apportion, then disallow the private part |
| Closing trading stock | Timing | Section EB 23 option for low-value stock |
Inland Revenue counts part-months as whole months, so a purchase date and an available-for-use date can give different month counts. Use the available-for-use date in the brief.
If you are stuck on a specific category, our accounting assignment help page explains how a specialist can review your working and give model-answer guidance.
Where students lose marks on the Task 1 items
Four traps appear most often. First, the bad debt. A liquidated debtor tells you the debt is bad, but the deduction depends on the write-off date. Inland Revenue’s public ruling BR Pub 18/07 says the write-off must be within the income year and cannot be backdated.
Second, the accrued fees. The Taxation Review Authority has held that accounting fees accrued before the work is done are deductible when the work is performed.
Third, the trading stock. Inland Revenue says a business may use opening value as closing value if sales are under $1.3 million and a reasonable estimate of closing stock is under $10,000. It is optional, and it is separate from the low-turnover rules for traders under $3 million of sales. Test both numbers against the brief and cite s EB 23.
Fourth, the maintenance contract. Determination E12 excuses some service contracts for plant and equipment from the prepayment spreading rule if the contract total is within a stated amount and the unexpired period after balance date is within three months. Confirm the determination is still in force when you cite it.
Showing nil adjustments
If an item needs no adjustment, give it a row and write the reason. “No adjustment: the accounts and tax rules agree” is not a reason. “No adjustment: the exception applies because the contract total and remaining months are within the limits” is. A missing row looks like a missed item.
Task 2: imputation credits and RWT, explained generally
Three ideas carry the task. The maximum imputation ratio is 28/72, meaning up to 28 cents of credit for every 72 cents of cash dividend. Credits cannot exceed what the imputation credit account (ICA) holds if you want to avoid a debit. RWT on a dividend is 33% of the gross dividend, less the credits attached.
Inland Revenue’s example makes it concrete. A gross dividend of $100 is $72 cash plus $28 credits. RWT is $33 less $28, so $5. The shareholder receives $67 in cash, but includes $100 of dividend income and claims $33 of credits.
In the case study, work in this order: ratio limit on credits, compare with the ICA balance, take the lower, add to cash for the gross dividend, apply 33%, subtract credits, subtract the result from the cash dividend. Then split by shareholding. If the brief does not give the split, show the formula and state your assumption.
The ethics part: how to approach it
Name one fundamental principle, name the threat, then give the response. The CA ANZ-listed principles are integrity, objectivity, confidentiality, professional competence and due care, and professional behaviour. The listed threat categories are self-interest, self-review, advocacy, familiarity and intimidation.
When a director pushes you to claim more than the law allows, integrity is the usual principle at risk and intimidation is a likely threat. A good response explains the correct treatment, declines the unsupported claim, records the advice, escalates within the company and considers withdrawing. Since 1 July 2025 the NZICA Code of Ethics also has section 380 on tax planning, which requires a credible basis in law before you advise on an arrangement.
Before you write the tax part of Task 3, check whether the gift is cash or goods. The company donation deduction covers cash gifts according to Inland Revenue’s donee guide. Gifts of trading stock to an approved donee organisation have had their own rule since 1 April 2024. Do not rely on the old 5% limit for companies, which was removed years ago.
Mark-maximising checklist
- Open with accounting profit and end with taxable income.
- Give every category its own row, including nil rows.
- Show the arithmetic with months, rates and sources.
- Cite legislation only where you can name the section accurately.
- State assumptions, such as whether figures include GST.
- Choose the option that minimises taxable income where the law allows, and explain the choice.
- Answer each part of Tasks 2 and 3 under its own heading, with references.
Common mistakes
Students often start from the wrong number, use accounting carrying amount instead of adjusted tax value, or forget that depreciation stops in the year of sale. Others apply 33% RWT to the cash amount instead of the gross dividend, or give the ethics answer as general advice with no named principle.
Another slip is quoting a threshold from memory. The donee rules and the Code of Ethics have both changed recently, so check the current Inland Revenue page and cite it.
What students ask before starting
Typical search strings run like this: “profit before tax or after tax”, “how is a lease incentive taxed in NZ”, “do I need section numbers”. The FAQs below answer the most common ones.
Frequently asked questions
Do I start from profit before tax or after tax?
Start from accounting profit before tax. Taxable income is calculated before income tax, so using profit after tax would mix the two. In this case study the brief gives profit before tax, which is your opening line in the reconciliation.
Do I need to include items that need no adjustment?
Yes. A nil adjustment shown with a reason proves you tested the item. Leave it out and the marker cannot tell whether you missed it or decided it was fine. Use one short row per nil item.
Can I choose between diminishing value and straight line?
Where the brief gives both rates, choose one and justify it. If the owners want the lowest taxable income, compare first-year depreciation under each method and use the higher figure. Apply months of use to either method.
How do I treat a bad debt written off after balance date?
It is not deductible in the year ending at that balance date. Inland Revenue’s ruling says a write-off cannot be backdated. Add the expense back in the reconciliation and note that it becomes deductible in the year of write-off, if the debt is still bad.
Is RWT charged on the cash dividend or the gross dividend?
RWT is calculated on the gross dividend, which is cash plus imputation credits, at 33%, and then reduced by the credits attached. The shareholder receives the cash dividend less that RWT. Show each step in a table.
Which Code of Ethics do I cite as a New Zealand member?
NZ members are subject to the NZICA Code of Ethics, set out on the CA ANZ website. Cite it by name and name the specific principle and threat. Assurance work has a separate standard, so check that you are citing the right one.
If the ethics answer or dividend working still feels shaky, our finance assignment help team can review it, and you can check the credentials of the people involved on our experts page. We provide model answers and guidance; you are responsible for what you submit and for your provider’s rules. Compare layouts in this financial analysis and taxation sample; the NZ question bank lists similar briefs.
About the author
Dr. Sophie McAllister – Victoria University of Wellington, New Zealand
Dr. Sophie specialises in MBA finance assignments involving financial performance, investment decisions, budgeting and business analytics. View Dr. Sophie McAllister’s profile
References
Chartered Accountants Australia and New Zealand. (2025). 2025 update to NZ Code of Ethics on tax planning and related services. https://www.charteredaccountantsanz.com/news-and-analysis/news/2025-update-to-nz-code-of-ethics-on-tax-planning-and-related-services
Chartered Accountants Australia and New Zealand. (n.d.). NZICA rules and Code of Ethics. https://www.charteredaccountantsanz.com/member-services/member-obligations/regulations-and-guidance/new-zealand-regulations/nzica-rules-and-code-of-ethics
Chartered Accountants Australia and New Zealand. (2019). Revised NZ Code of Ethics. https://www.charteredaccountantsanz.com/news-and-analysis/news/rewrite-of-nz-code-of-ethics-invite-to-comment
Income Tax Act 2007 (NZ). https://www.legislation.govt.nz/act/public/2007/0097/latest/whole.html
Inland Revenue. (n.d.). Dividends. https://www.ird.govt.nz/pages/campaigns/income-tax/investment-income/dividends
Inland Revenue. (n.d.). Maximum imputation ratio. https://www.ird.govt.nz/income-tax/income-tax-for-businesses-and-organisations/income-tax-for-companies/imputation-for-companies/how-imputation-credits-work/maximum-imputation-ratio
Inland Revenue. (n.d.). Valuing trading stock. https://www.ird.govt.nz/income-tax/income-tax-for-businesses-and-organisations/types-of-business-income/trading-stock/valuing-trading-stock
Inland Revenue. (n.d.). Work out diminishing value depreciation. https://ird.govt.nz/income-tax/income-tax-for-businesses-and-organisations/types-of-business-expenses/depreciation/claiming-depreciation/work-out-diminishing-value-depreciation
Inland Revenue. (2007). Timing of deduction for accounting services [Case summary, TRA Decision 14/07]. https://www.taxtechnical.ird.govt.nz/case-summaries/2007/timing-of-deduction-for-accounting-services
Inland Revenue. (2009). Determination E12: Persons excused from complying with section EA 3 of the Income Tax Act 2007. https://www.taxtechnical.ird.govt.nz/determinations/miscellaneous/det-e12-persons-excused-from-complying-with-section-ea-3-of-the-income-tax-act-2007
Inland Revenue. (2013). Lease inducement and lease surrender payment measures. https://www.taxtechnical.ird.govt.nz/new-legislation/act-articles/taxation-livestock-valuation-assets-expenditure-and-remedial-matters-act-2013/lease-inducement-and-lease-surrender-payment-measures
Inland Revenue. (2018). Public ruling BR Pub 18/07: Writing off debts as bad for income tax and GST. https://www.taxtechnical.ird.govt.nz/-/media/project/ir/tt/pdfs/rulings/public/pub00300-august2018.pdf
Inland Revenue. (2026). IR255 Charitable and donee organisations. https://www.ird.govt.nz/-/media/project/ir/home/documents/forms-and-guides/ir200—ir299/ir255/ir255.pdf
