What is withholding tax?
Withholding tax is actually now known as Tax on Schedular Payments. According to the IRD, not all contractors are created equal, and some must pay Tax on Schedular Payments/Withholding Tax depending on their activities. This is a flat rate, and is taxed regardless of whether the contractor is GST registered.
These are outlined in Schedule 4 of the Income Tax Act 2007, and a more detailed breakdown of the activities subject to Tax on Schedular Payments and the rates can be found at the end of this article.
How does Tax on Schedular Payments impact on payroll?
If you have a contractor working for you who is subject to Tax on Schedular Payments, you are responsible for finding the correct rate, taxing them and passing it on to the IRD. Contractors with Tax on Schedular Payments are still responsible for their own ACC earner’s levy and student loan repayments. Contractors must also make sure that they don’t have any further tax obligations, as Tax on Schedular Payments will not make up their entire liability if they earn over $55,000 per year.
Payroll exemptions for Tax on Schedular Payments
Some contractors will be subject to exemptions, but it is their responsibility to obtain a certificate before the exemption comes into effect. For a list of those who qualify for an exemption, see the IRD website.
Tips for paying wages when Tax on Schedular Payments is involved
Take out the hassle by using payroll software. With SmartPayroll, all you need to do is work out which tax rate you should be charging and enter the special rate in when adding the new contractor to the system. After that, their wages will automatically include the correct rate.
How to addTax on Schedular Payments in SmartPayroll
When adding a new employee (Employee Details>Add an Employee), scroll down to the section that called Tax Information, select WT Withholding Tax, then type in the specific rate. You can then continue to add employee details as usual, and the special rate will be used whenever you pay wages with SmartPayroll.
If you have any further questions about Tax on Schedular Payments/Withholding Tax, our wonderful helpdesk staff will be able to talk you through all your obligations. If you’d like to sign up to SmartPayroll, it is super easy to sign up online.
Tax on Schedular Payments/Withholding Tax rates:
|If the activity is…..||the normal tax rate is…||the rate if no tax code is declared is…|
|ACC personal service rehabilitation payments (attendant care, home help, childcare, attendant care services related to training for independence and attendant care services related to transport for independence) paid under the injury Prevention and Rehabilitation Compensation Act 2001.||10.5c||25.5c|
|Agricultural contracts for maintenance, development or other work on farming or agricultural land (not to be used where CAE code applies)||15c||30c|
|Agricultural, horticultural or viticultural contracts by any type of contractor (individual, partnership, trust or company) for work or services rendered under contract or arrangement for the supply of labour, or substantially for the supply of labour on land in connection with fruit crops, orchards, vegetables or vineyards||15c||30c|
|Apprentice jockeys or drivers||15c||30c|
|Cleaning office, business, institution or other premises (except residential) or cleaning or laundering plant, vehicles, furniture etc||20c||35c|
|Commissions to insurance agents and sub-agents, and salespeople||20c||35c|
|Company directors’ fees||33c||48c|
|Contracts wholly or substantially for labour only in the building industry||20c||35c|
|Demonstrating goods or appliances||25c||40c|
|Entertainers (New Zealand resident only) such as lecturers, presenters, participants in sporting events, and radio, television, stage and film performers||20c||35c|
|Examiners (fees payable)||33c||48c|
|Fishing boat work for profit-share (supply of labour only)||20c||35c|
|Forestry or bush work of all kinds, or flax planting or cutting||15c||30c|
|Freelance contributions to newspapers, journals (eg, articles, photographs, cartoons) or for radio, television or stage productions||25c||40c|
|Gardening, grass or hedge cutting, or weed or vermin destruction (for an office, business or institution)||20c||35c|
|Non-resident entertainers and professional sportspeople visiting New Zealand||20c||N/A|
|Payments for:caretaking or acting as a watchman
refuse removal, street or road cleaning
transport of school children
|Proceeds from sales of:eels (not retail sales)
greenstone (not retail sales)
sphagnum moss (not retail sales)
whitebait (not retail sales)
wild deer, pigs or goats or parts of these animals
|Public office holders (fees)||33c||48c|
|Sharefishing see “Fishing boat work for profit-share (supply of labour only)”|
|Shearing or droving (not to be used where CAE code applies)||15c||30c|
|Television, video or film: on-set and off-set production processes (New Zealand residents only)||20c||35c|
|If you are a non-resident contractor receiving a contract payment for a contract activity or service and none of the above activities are applicable, then.Non-resident contractor (and not a company)
Non-resident contractor (and a company)