Changes to Contractor Taxation Requirements effective from 1st October 2017
Inland Revenue Department has introduced a new legislation around Schedular Payments to deduct Withholding Tax from all contractor Payments. Pain Management and Rehabilitation Services as a company who contracts people (service providers) to perform services for its client or client of another person, is required to deduct the appropriate Withholding Tax from their contractor’s (service providers) payments, also called Schedular payments.
http://www.ird.govt.nz/contractors/about/understanding-schedular-payments-contractors.html
As you are a contractor receiving scheduler payments, you will have to read and complete the IR330C form (attached) and send it back to us choosing an appropriate rate of tax to be deducted ranging between 10% to 100% before 27th Sep 2017. Completion of IR330C is compulsory as in absence of this we will have to deduct 45% tax from all payments. Please contact your accountant if you have difficulties choosing your correct rate.
Contractors who have good compliance history with the IRD could apply for a special tax code of 0% and advise us of this. Contractors need to ask their accountants about this and submit an application to the IRD on IR23BS (attached).
We have collated some common questions around the changes in Taxation. Feel free to email Anurag Nair (accounts@painrelief.co.nz) for any questions you may have.
1. When will we start deducting tax from provider payments?
PMARS will start deducting withholding tax from your payments starting 1 October 2017. This money will be on paid to the IRD monthly as part of your tax obligations.
2. What is the correct Tax Rate?
The standard rate of tax is 20% but you may choose a different rate as per your tax obligations when you complete Form IR330C.
IRD also has a tool to help you choose the correct rate – Tax Estimation Tool Click Here
3. What is the last date of submitting IR330 or special exemption certificate?
The last to submit this is 27th September 2017.
3. How can you get an exemption or 0% Withholding Tax Rate?
If you have who have good compliance history with the IRD you can apply for a special tax code rate of 0%. Please consult your accountant and submit an application to IRD on IR23BS.
4. What if you don’t complete and submit IR330C?
If you don’t provide either an IR330C, or a Special Tax Code Certificate, PMARS will have to deduct tax at the no-notification rate, which is 45% for all payments after 1st October 2017.
5. How is this helpful for contractors in private practice or otherwise?
If you choose the correct tax rate and get the tax deducted regularly, you may not have to pay provisional tax. This depends on your other income as well, so please consult your accountant. This also means that you don’t end up with a big tax bill at the end of the year.
Some useful resources and links –
Withholding Tax Deduction Notification – http://taxpolicy.ird.govt.nz/publications/2016-commentary-bteirm/contractors-elect-own-withholding-rate
Extending Withholding to Labour-Hire Firms – http://taxpolicy.ird.govt.nz/publications/2016-commentary-bteirm/extending-withholding-labour-hire-firm-contractors
Understanding Schedular Payments – http://www.ird.govt.nz/contractors/about/understanding-schedular-payments-contractors.html
IR23BS – http://www.ird.govt.nz/forms-guides/number/forms-001-99/ir023bs-form-special-taxcode.html
Tax Estimation Tool – http://www.ird.govt.nz/calculators/tool-name/tools-t/tax-rate-estimation-tool-contractors.html
If you have any questions, please free to contact Anurag (accounts@painrelief.co.nz).