Written by our accounting partner Andrew Palmer, from Eden Palmer Prewett Ltd
Overview
This summary provides an overview on the schedular payment rules in New Zealand. In particular, the withholding tax changes for contractors working for a “labour-hire” firm.
Please note that this document does not attempt to be a complete summary of the withholding obligations of contractors for labour-hire firms. For further information please contact us or see Inland Revenue’s website.
What does this mean for me?
In NZ, tax must be deducted from all payments made to contractors working under a labour hire arrangement for a labour hire business. This applies even if the contract you have is with your company or trust.
Definition of a Labour-Hire Firm
A labour hire firm is one in which labour-hire arrangements are one of the main activities of the firm. These types of arrangements involve a client hiring a firm to provide a contractor to perform work or services for that client. The client then pays the firm, who in turn pays you as the contractor. Good Together is therefore, by definition, a labour-hire firm.
What rate is the tax deducted at?
The standard withholding tax rate on payments made by labour hire firms is 20%. However, if you fail to provide your IRD number to the labour-hire firm, a non-declaration withholding rate of 45% will apply.
You are allowed to select your own rate, by completing a form approved by the Commissioner (IR330C). The minimum withholding rate you can elect is 10% for resident contractors and 15% for non-resident contractors. Some contractors can request a lower withholding rate by applying for a special tax rate certificate from the Commissioner.
Where you select your own withholding rate, you can make two changes to this rate in any 12 month period. Thereafter, you will be required to obtain consent from the payer prior to making any further changes to your withholding rate.
To the extent you contract for more than one labour-hire firm, you will need to provide a withholding rate election to each firm, if you do not want to apply the standard rate.
Can Inland Revenue change my rate if it is too low?
Yes, if you have not met a historical tax liability, the Commissioner has the ability to prescribe a withholding tax rate. In addition to this, the Commissioner has the ability to make further deductions and use these to meet tax debts and other liabilities. The maximum rate that the Commissioner can prescribe is 50%.
What if I am operating through a Company?
Withholding tax will still apply to payments made to a company. That is, the labour-hire firm will be required to withhold tax from payments to contractors regardless of the legal entity the payments are being made to.
If your company finds that tax is being over-withheld, you can apply for a special tax code certificate for the company with a withholding rate of 0%.
Please let us know if you require assistance with this.
Does this mean I don’t have to pay provisional tax?
This depends on the withholding tax rate that has been elected and your personal circumstances.
Please let us know if you would like assistance selecting an appropriate withholding tax rate, advice on provisional tax or applying for a special tax rate.
Contact Us
Should you require further assistance or advice, please contact us as follows:
Andrew Palmer
Partner
+64 9 636 3332
www.eppl.co.nz
