How do I get it right? New Contractor Tax Changes
Contractor tax changes
(Information courtesy of Business.govt)
If their payer agrees, all contractors can now have tax deducted from their pay at a flat rate of their choosing. All Contractors hired by a recruitment agency, or other labour hire business, must have tax deducted from their pay.
If you have tax deducted from your pay (voluntarily or compulsory), you will need to fill out the new tax rate notification form (IR330C) and give it to you the organisation(s) you contract to. New Zealand tax residents can pick any rate from 10% up to 100%.
Check out the tax rate estimation tool on the IRD webite. Tax rate estimation tool for contractors (external link)
Do I still pay provisional tax?
It’s up to you. The tax rate you choose to have deducted from your pay will be a factor in whether or not you do.
You only need to pay provisional tax if you’re expecting to have an end-of-year tax bill of more than $2,500.
If tax is deducted from your payments, you can reduce the chance of having an end-of-year tax bill by choosing a tax rate that better fits your circumstances. This could mean you no longer need to pay provisional tax.
If you want to keep paying provisional tax but are now having tax deducted from your payments, you might be able to get a 0% special tax rate — fill out Inland Revenue’s IR23BS form. This would allow you to continue paying tax as you have been before the rules changed.
What if I pay too much — or too little — tax?
The same as always. If you pay too much, you’ll get a refund from Inland Revenue.
If you pay too little, you’ll owe money to Inland Revenue and will get a tax bill. If your end-of-year tax bill is more than $2,500, you’ll be expected to pay provisional tax the following year.
What if I’m paying off tax arrears?
Choosing a higher tax rate will not help clear your debt to Inland Revenue. You’ll need to keep paying those arrears separately to the tax you have deducted from your schedular payments.
Your options during financial difficulty (external link) — Inland Revenue
Does this change how I charge GST for my services?
No. When invoicing, continue to charge GST on your before-tax total. GST is a tax on goods and services paid by the business that hires you. It isn’t a form of income tax.
If you would like to discuss your situation, feel free to contact the Ontrack Team for a chat.