myIR, payments and more
From 1 April 2017, the way some contractors pay tax on schedular payments has changed, giving them greater choice and helping them get their tax right. Schedular payments are specified payments contractors receive for certain types of work. Income tax is deducted before the payment is made to the contractor.
Contractors who don't receive a type of schedular payment listed above can now opt into the schedular payments rules with the agreement of their payer.
If you work as a contractor
If you were already receiving schedular payments before 1 April 2017, then you will still continue to pay tax this way. However, now you can either use the standard rate or you can choose your own rate, subject to minimums outlined on the IR330C. To choose your own rate you'll need to advise your payer of the rate by completing a Tax rate notification for contractors (IR330C) form instead of the Tax code declaration (IR330) form.
If you work as a contractor for a labour hire business, eg recruitment company
If you work under a labour hire arrangement for a labour hire business you'll need to complete an IR330C and give it to your payer. You can choose the tax rate you want deducted or use the standard tax rate for the activity type you do. They will deduct tax from payments made to you from 1 April 2017, regardless of when the work was completed or the contract was signed.
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.
If you're a business that paid schedular payments before 1 April
New contractors starting with you will need to complete and give you a Tax rate notification for contractors (IR330C) instead of the Tax code declaration (IR330). Your contractors can give you an IR330C to change their tax rate.
If you're a labour hire business and you pay contractors
If you pay contractors under a labour hire arrangement, these payments must now have tax deducted.
Contractors will need to provide you with a completed IR330C form. Include the details of the payment(s) and tax deduction(s) on your employer monthly schedule.
If you're making these payments to a contractor who has a certificate of exemption (COE), from 1 April it must be treated as a 0% special tax rate certificate until the earlier of:
- the expiry date, or
- 31 March 2018.
If you're a labour hire business and weren't able to comply with the 1 April changes
If you'd have incurred unreasonable costs to comply with these changes by 1 April you can delay the date you start to the earlier of:
- 1 July 2017, or
- the date you can start complying.
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 need help determining whether your circumstances meet the criteria for this extension we recommend you seek advice from a tax advisor.