Tax and contractor law change

From 1 April 2017, the way contractors pay their taxes will change, giving you greater choices and making it easier to get tax right.

Recruitment companies will be required to deduct withholding tax from all payments to you from 1 April 2017. The default rate is 45%, the new change is that it now effects those contracting through companies.

Sole Traders:                 

If you work directly for any business and are not required to have tax deducted by the hirer, you elect your own rate with the minimum being 10%.

Both you and your payer must agree to this approach. If you both agree, complete the new tax rate notification form (IR3330C). The benefits of choosing the right rate means you are less likely to have a tax bill at the end of the tax year.

Companies:

If you contract through a company and you're not an employee receiving salary or wages you will need to complete an IR330C and give to your payer. They will deduct tax from payments made to you from 1 April 2017. This is the same whether you are self-employed, a sole trader or a company.

On this form, you are required to pick the rate you would like tax to be deducted at. New Zealand tax residents can pick any rate from 10% up to 100%.

 If you complete the form but don't pick a tax rate, the labour hire business will deduct tax at 20%. If you don't complete the IR330C, the no-notification rate of 45% will be deducted.

New Zealand tax residents 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, this includes companies. This means you must now include all the relevant details for the payments on your employer monthly schedule, even though no tax is deducted.

Interest changes for underpaying provisional tax:

Use of money interest is charged if your year end-of-year earning is higher than projected in your provisional tax bill. From the 2018 tax year, new rules on when this is charged mean fewer people will have to pay it.

Please contact us www.gilmoretaylor.co.nz if you would like to discuss any of these changes and how they may affect you.