Schedular Payments change in New Zealand

AdobeStock 90560570From 1 April 2017, the New Zealand IRD changed the way some contractors pay tax on schedular payments. Schedular payments are specified payments contractors receive for certain types of work they complete. Income tax is deducted before the payment is made to the contractor. The IRD now also allow contractors who didn’t receive a type of schedular payment listed to opt into the schedular payments rules with the agreement of their payer.

Contractors that received schedular payments before 1 April 2017 will continue to pay their tax this way, but can now choose to use the standard rate or their own rate, subject to minimums outlined on the IR330C form. To choose their own rate, contractors need to advise their payer of the rate by completing a tax rate notification for contractors (IR330C).

If a contractor works under a labour hire arrangement for a labour hire business (such as a recruitment company), the contractor must complete an IR330C to give to their payer. The contractor can choose the tax rate they want deducted or use the standard tax rate listed for their activity type. The payer will then deduct tax from payments made to the contractor from 1 April 2017, regardless of when the work was completed or the contract was signed. If the contractor is a New Zealand tax resident, they can't apply for a certificate of exemption for these payments, but it may be possible for them to apply for a 0% special tax rate instead.

If you run a business that paid schedular payments to contractors before 1 April, any new contractors starting must complete and give you a tax rate notification for contractors (IR330C). Your contractors can also give you an IR330C to change their tax rate if required.

If you run a business and pay contractors under a labour hire arrangement, you must now deduct tax from these payments. The contractors must provide you with a completed IR330C form. You must include the details of the payments and tax deductions on your employer monthly schedule form that you send to the IRD. You may be making these payments to a contractor who has a certificate of exemption (COE). If this is the case, then from 1 April, you must treat the payments as having a 0% special tax rate certificate until the earlier of the expiry date of the COE, or 31 March 2018.