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Payroll and Tax on Schedular Payments (Withholding Tax)

By The Team | December 12, 2013

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.

Withholding tax in smartpayroll payroll wages

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
Honoraria 33c 48c
Modelling 20c 35c
Non-resident entertainers and professional sportspeople visiting New Zealand 20c N/A
Payments for:caretaking or acting as a watchman

mail contracting

milk delivery

refuse removal, street or road cleaning

transport of school children

15c 30c
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

25c 40c
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)

15c15c 30c20c