The Concept of Income: a New Zealand Analysis

Abstract

This thesis examines income as a surrogate for underlying features of an individual's well-being, for the purpose of achieving horizontal equity in taxation. In Part I the foundation concept of income, based on the Schanz-Haig-Simons wealth accrual and consumption models, is found to be the most appropriate measure of income that might be used in tax practice to achieve the equity objective. Other economic concepts of income and accounting and legal concepts of income are tested against the foundation concept as a benchmark to identify congruence with, and divergence from, the standard. The objective is to seek a route towards the practical application of the foundation concept of income, which improves the existing notion of taxable income. Part II of the thesis investigates discrepancies between the ways that net receipts and economic gains from selected economic events (business transactions, capital gain transactions, gifting, provision of benefits in kind, and generation of imputed income from owner-use of assets, self performed services, and leisure) are included or excluded from taxable income. The aim is to determine whether the differences are logical and equitable. The thesis advocates the adoption of a comprehensive concept of income in New Zealand, which is closely aligned to the foundation concept of income, for practical taxation purposes.