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Budget 2016 has introduced changes for contractors, and payers of contractors, as well as other business tax changes that will come in to effect on 1 April 2017.
You may be affected by the changes if:
- you pay schedular payments
- you receive schedular payments
- you're a labour hire business and you pay contractors
- you're a contractor working for a labour hire business, eg recruitment company, or
- you pay provisional tax.
Tax rate notification for contractors (IR330C) form
From 1 April 2017 if you have contractors receiving schedular payments and they want to change their tax rate or if a new contractor starts working for you, you'll need to give them a Tax rate notification for contractors (IR330C) form instead of the Tax code declaration (IR330) form.
The IR330 should only be given to employees receiving salary or wages.
Variable tax rates
From 1 April 2017 contractors subject to the schedular payment rules can choose their own tax rate when they complete the IR330C, subject to minimums.
If you use payroll software, your software should already be able to accept variable tax rates. If you’re unsure, check with your software provider.
Tax rate notification for contractors (IR330C) form
From 1 April 2017 if you’re receiving schedular payments and you want to change your tax rate or if you start working for someone new, you'll have to complete a Tax rate notification for contractors (IR330C) form instead of the Tax code declaration (IR330) form.
Choosing your own tax rate
If you’re receiving schedular payments and the standard rate for your activity doesn’t best fit your circumstances you'll be able to choose your own rate, subject to minimums, by completing an IR330C and giving it to the person paying you (payer).
If you’re a labour hire business and you pay contractors to do work for your clients under a labour hire arrangement, from 1 April 2017 these payments come under the schedular payment rules and tax must be deducted.
Tax must be deducted from payments made on or after 1 April, even if the work was completed or the contract was entered into before this date.
You’ll need to get a Tax rate notification for contractors (IR330C) form from all contractors, this will tell you what rate to deduct tax at. Include the details of the payment(s) and tax deduction(s) on your employer monthly schedule, just like you would with any other schedular payment.
If you’re making these payments to someone who holds an existing certificate of exemption (COE) from 1 April you will need to treat the COE as a 0% special tax rate certificate until the earlier of the expiry date or 31 March 2018. This means you must now include all the relevant details for the payments on your employer monthly schedule, even though no tax is deducted.
These changes don't affect the rules for paying employees/temporary employees who receive salary or wages.
Labour hire businesses can include recruitment and on-hire companies.
What to do if you aren't able to be ready for the 1 April changes
If you’re a labour hire business and you’d need to incur unreasonable costs to have systems in place to enable you to comply with the changes on 1 April you can delay the date you start complying to the earlier of:
- 1 July 2017, or
- the date you can start complying.
We would expect unreasonable costs to be unusual or costs that you wouldn't normally incur in your circumstances. See the example below.
Unreasonable costs example
People Co is a labour hire business. It pays over 400 contractors each week who work under labour hire arrangements and previously didn’t have tax deducted from their payments. They also have a large number of employees who are paid a salary. People Co will need to move all the details of these contractors from its debtors/creditors system into its payroll system so that tax can be deducted.
To move all details over prior to 1 April 2017 would require them to hire 2 temporary workers. They’ve determined that they could do this without hiring temporary workers by 21 April 2017 just using their current payroll staff. Therefore People Co decides to use the extension to delay the implementation of these changes until 21 April 2017 as they consider the cost of hiring the two temporary workers would not be a reasonable cost for them to incur to enable them to comply.
If you qualify for the extension you must be able to comply with the changes from 1 July 2017 at the very latest. There will be no further extensions.
You must determine whether in your circumstances this extension could apply to you. If you believe it does, there is no need for you to contact us. If you need help determining whether your circumstances meet the criteria for the extension we recommend you seek advice from a tax advisor, such as an accountant.
What you need to do if you're a contractor working for a labour hire business, eg recruitment company
If you work under a labour hire arrangement for a labour hire business and you’re not an employee receiving salary or wages you’ll need to complete a Tax rate notification for contractors (IR330C) and give it to your payer. They will deduct tax from payments made to you from 1 April 2017.
Tax must be deducted from payments made to you on or after 1 April, even if the work was completed or the contract was entered into before this date.
If you're a New Zealand tax resident you can't apply for a certificate of exemption for these payments, but you may be able to apply for a 0% special tax rate instead.
To provide more certainty, the use-of-money interest rules relating to provisional tax have changed for most people using the standard method. The changes include:
- When determining the interest start date, the $50,000 RIT threshold for individuals using the standard option has been increased to $60,000.
- This threshold will also apply to non-individuals.
The 1% monthly incremental late payment penalty will no longer be charged on:
- GST debts for the period ending 31 March 2017 and later
- income tax (including provisional tax) for the 2017-18 and later income years, and
- Working for Families Tax Credits overpayments for the 2017-18 and later income years.
We will be entering into information sharing agreements with approved credit reporting agencies that will allow us to share information relating to a company's reportable unpaid tax as per section 85N of the Tax Administration Act 1994. Companies will be notified prior to their information being shared.
We are also entering into an information sharing arrangement that allows us to share information with the Companies Office for the purpose of preventing, detecting, investigating or providing evidence of, certain offences under the Companies Act 1993 as per section 85M of the Tax Administration Act 1994.