Tax changes for cross-border workers

On 8 September 2022, the New Zealand Government introduced a new tax bill - Taxation (Annual Rates for 2022-23, Platform Economy and Remedial Matters) Bill (No. 2). A number of tax changes were proposed, and we will discuss them over the next few tax updates.  

One of the proposed changes will affect employers (and employees) of cross-border workers and payers of non-resident contractor payment.  

The proposed changes include: 

  1. Employers of cross-border workers would have a 60-day grace period to amend and correct their employment tax positions.  
  2. Employers of certain cross-border workers can account for pay-as-you-earn tax on an annual basis.  
  3. Non-resident employers with very limited presence in New Zealand who wrongly determined that they do not have New Zealand employment tax obligations would not be penalised.  
  4. Concessions to make it easier for payers of non-resident contractor withholding payment to comply with the rules.  
  5. New reporting obligations on payers of non-resident contractor payment.

Who will be affected by the changes? 

Employers and employees involved in cross-border employment arrangements. This includes situations where there is an employee of a non-resident employer who provides services in New Zealand; a New Zealand resident employee who provides services outside New Zealand; and a secondee or an individual who provides services for or on behalf of a person who is not resident in New Zealand. Typically, this would encompass cross-border secondees, short-term business travellers, remote workers, and individuals who work abroad but retain their New Zealand tax residency and pay New Zealand tax on their worldwide income.   

Shaneen Tie, BDO Tax Associate Director, takes us through the key changes affecting cross-border workers as part of new tax legislation the NZ Government has introduced as part of this BDO Eyes on Tax update. 

What are the key changes?  

60- day grace period  

A 60-day grace period is available to employers in situations where:  

  • an employee received an extra pay;  

  • an employee remained in New Zealand in excess of the tax exemption period stipulated in New Zealand tax legislation or tax treaties (commonly 92 days under New Zealand tax legislation, or 183 days under most double tax treaties);  

  • and the employer has taken reasonable effort to meet or correct their employment tax obligations.  

The 60-day grace period will mean that the employer would not be subject to interest and penalties for non-compliance. The 60-day grace period starts from the earlier of the date of breach or payment, or the date on which the employer could reasonably foresee that a breach or a payment would occur.  

Annual PAYE arrangement  

Employers of a certain class of cross-border employees would be able to apply to the Commissioner of Inland Revenue for an agreement that employment taxes are accounted for by 31 May following the end of the tax year, rather than the default employment tax filing and payment rules that apply to New Zealand based employers. The agreement will only be made where there are “special circumstances”. The Commissioner of Inland Revenue will develop guidance to clarify scenarios that would qualify for this concessional treatment.  

Safe harbour for non-resident employers  

Non-resident employers who have incorrectly determined that they do not have New Zealand employment tax obligations due to a lack of sufficient presence in New Zealand would be protected from penalties and interest, provided they meet certain conditions.  

The conditions include that the employer has two or fewer employees present in New Zealand at any point in the income year or pays $500,000 or less of gross employment related taxes in New Zealand in an income year; and has arranged for their employment related tax obligations to be met by another person, or has communicated to the employee that the employee must meet the obligations directly.   

Non-resident contractor taxes  

The non-resident contractor tax regime imposes an obligation on persons who make contract payment to non-resident contractors. A non-resident contractor is a non-resident who performed services of any kind in New Zealand (except as an employee) or supplies the use of, or right to use, in New Zealand any personal property or services. The rules require that the payer withholds taxes on payment made to a non-resident contractor unless one of the exclusions contained in New Zealand tax legislations and/or double tax treaties applies.  

The tax bill proposes that a similar 60-day grace period be extended to payers of non-resident contractor payment, to allow them to meet or correct their non-resident contractor tax obligations without being subject to penalties or interest. A payer seeking to rely on the concession would have to demonstrate that they have made reasonable enquires or took reasonable steps to meet their obligations. A payer can also nominate a different taxpayer (e.g., a parent company or an associated entity) to meet their obligations.  

There are certain exclusions from the non-resident contractor tax regime. These include:  

  • where a non-resident contractor has full relief under a double tax treaty and is present in New Zealand for less than 92 days (in a 12-month period).  

  • where contract payment of less than $15,000 (in a 12-month period) is made to a non-resident contractor.  

The exclusions are difficult to apply, due to situations outside the knowledge or control of the payers. For example, if a non-resident contractor decides to stay in New Zealand for an extended holiday after they have completed a project, there would be a breach of the 92-day threshold.  In the tax bill, it is proposed that a payer would only have to assess the thresholds based on their contract with the non-resident contractor and does not have to take into account unrelated matters or other unrelated contracts.   

Filing obligations for payers of non-resident contractor payment  

It is also proposed that payers of non-resident contractor payment would have to meet monthly reporting requirements, and provide details of payment made to non-resident contractors such as:  

  • names of payer and payee 

  • date of payment 

  • if the payment was made during a grace period 

  • contact addresses of the payer and payee 

  • tax file number of the payee (or their foreign tax identification number) 

  • gross amount of the payment and the amount of withholding tax deducted. 

The report will be due for filing with New Zealand Inland Revenue by the 15th day following the end of each calendar month.  

Other proposed changes 

Other proposed changes include a change to the fringe benefit tax and employer superannuation contribution tax rules for employee representatives of foreign employers, changes to the fringe benefit and pay as you earn tax rules in relation to contribution to foreign superannuation, and clarifying the tax rules regarding trailing payment and for non-resident entertainers. 

When are the changes effective from? 

The proposed changes would take effect either from 1 April 2023 or 1 April 2024.  

What happens next?  

The bill will go through the parliamentary review and debate process, and is expected to pass into law by 31 March 2023. We expect there will be changes and refinements to the proposed rules. If you require more details of how the proposed changes affect you, please contact your usual BDO advisors or one of our specialist tax partners to discuss.   

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