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Payroll: Tax on schedular payments

Certificates of exemption from withholding tax (IR331)

Individuals, trusts, partnerships and companies are eligible to apply for a certificate of exemption (COE) if they:

  • are in business
  • receive schedular payments that are subject to a prescribed rate of tax under Schedule 4 of the Income Tax Act 2007
  • have a good tax compliance history with us. This means returns are filed and payments are made on time. As an employer, this also means that the correct tax codes are used for employees ie, if an employee doesn’t provide a tax code declaration, then tax is deducted at the no-notification rate of 30 cents in the dollar.

If a contractor has this exemption, you can make payments without deducting withholding tax. It cannot be used to exempt an employee's salary or wages from PAYE deductions.

Checking the certificate is valid

If you're not sure if the contractor has given you a valid COE we can check this for you. Have the certificate with you when you call us on 0800 377 772.

Request or renew a COE

To request a certificate of exemption, go to "Get it done online".

During January and February each year, we send renewal requests to all Certificate of exemption from withholding tax (IR331) holders, who have certificates expiring at the end of March of that same year. If they choose to renew their certificate, we'll send the new one in time for the beginning of the tax year (1 April).

Changes to the certificates

COEs valid from 1 April 2007 are credit card-sized with a holographic covering, and may be issued for up to five tax years. We will determine the length of time based on your good tax record.

Horticulture and viticulture industries

From 1 April 2006 companies operating in the horticulture and viticulture industries have been able to apply for a COE from tax on schedular payments.

From 1 April 2010 any type of contractor (individual, partnership, trust or company) is required to have schedular payments deducted when providing work or services for the supply of labour, or substantially for labour on land in connection with:

  • fruit crops
  • orchards
  • vegetables or
  • 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.
Example  
Company A provides services under a contract which involves a high capital outlay (ie large use of machinery). As this contract is deemed to have a high capital outlay and low labour input, payments made to Company A in this circumstance will not have tax on schedular payments deducted. However, if the use of the machinery was incidental, with the supply of labour making up most of the contract, then payments made to Company A for this contract would have tax on schedular payments deducted.

This means that individuals, trusts, partnerships or companies carrying out this type of work can apply for a COE or a special tax code.

Find out more about the recent legislation changes impacting the horticulture and viticulture industries.

 

 


Date published: 30 Mar 2010

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