Changes to the schedular payments rules

There are three important changes to the schedular payments rules (formerly known as ‘withholding payments’) affecting non-employee taxpayers who receive income from performing services. These will come into force from 1 April 2017. The changes could impact you or your business so it is important to consider them before they are implemented.

1. Payments made to contractors (including those trading through companies) under labour hire arrangements must withhold tax

Payments from labour hire firms to contractors will now be required to have withholding tax deducted from their payments. This is to ensure that contractors employed by labour hire firms are not solely responsible for managing their own tax obligations. It is worth noting that this rule will only apply to labour hire arrangements where one of the payer’s main activities is providing labour hire. 

2. Taxpayers may elect to use their own withholding rate

One of the new rules allows taxpayers who receive income to elect to use a tax rate that aligns closer with their expected tax obligations. For most NZ residents, this rate cannot be lower than 10%. This rule change allows for taxpayers to match their withholding tax paid through the year to their expected year end tax liability.

3. Voluntary schedular payments can be made

If your income is not subject to the schedular payment rules, under the new rules you can now choose to have withholding tax deducted voluntarily. This allows for a ‘pay as you earn’ approach for taxpayers who wish to avoid a large year end tax liability by paying withholding tax throughout the year.

For more information on the new schedular payments rules please contact your local BDO adviser.