Contractor Payments (Schedular Payments)

With the 2014 grade harvest well under way it will soon be time for vineyards to be looking toward the next job of pruning and the hiring of contractors.

With the 2014 grade harvest well under way it will soon be time for vineyards to be looking toward the next job of pruning and the hiring of contractors.

When providing contracting services the contractor is required to have tax deducted from any payments made where they are providing services under a contract or arrangement for the supply of labour, or mainly for labour, whether provided by an individual, partnership, trust or company when working on land in connection with the following:

· fruit crops
· orchards
· vegetables
· vineyards

This does not include work or services by a:

· post-harvest facility
· management entity under a formal management agreement under which the entity is   responsible for payment for the work or services provided.

The contractor is required to use a “WT” tax code (with the rate determined by the industry), unless they are eligible for a certificate of exemption or a special tax rate.

To get a certificate of exemption a contractor must have their business activity listed on the Tax Code Declaration (IR330) form and have a proven good record for filing returns and making payments. A copy of this must then be supplied to all employers otherwise they are required to deduct tax. If no Tax Code Declaration or Certificate of Exemption is supplied then tax must be deducted at the no-notification rate of 30 cents in the dollar.

Schedular payments made to contractors in the horticultural and viticultural industries will need to be recorded on the payer's employer monthly schedule, whether they deduct tax or not.

Below are a couple of examples of how an invoice for contract labour should be calculated.

Calculating Schedular Payments for Tax and GST (Examples)

Viticultural/Agricultural work
Contract labour                                                                       1,000.00
Plus GST (15%)                                                                         150.00
GST Inclusive Amount (for GST return)                                 1,150.00
Less Withholding tax (15% for Agricultural work)                    (150.00)
Net Payment to Contractor                                                    $1,000.00

Builder
Contract labour                                                                        1,000.00
Plus GST (15%)                                                                          150.00
GST Inclusive Amount (for GST return)                                  1,150.00
Less Withholding tax (20% for Building industry)                      (200.00)
Net Payment to Contractor                                                       $950.00

The $1,000 is shown in Box 1 ‘gross earnings’ and Box 2 ‘schedular payments not liable for ACC earner’s levy’ on the Employer Monthly Schedule (IR348) form. The withholding tax of $200 is shown in Box 3 ‘schedular tax deductions’.

The $200 deduction figure is then transferred to the Employer Deductions (IR 345) as part of the total PAYE/Schedular Tax deductions.

Author: Ceridwen Jones