Contractor Tax Changes Effective 1 April 2017
There is a significant change to the way that contractors are taxed from 1 April 2017.
Who will be affected?
Any contractor who was previously receiving schedular payments (subject to withholding tax) from a payer. Check out page 3 of the IR 330c here for a complete list – but here are some of the common ones:
Labour only building contractors
From 1 April 2017, you can select your tax rate, as opposed to having it set for you by the IRD. For example, building contractors had to use the tax rate 20% and have that deducted from their pay before 31 March 2017. Now for most NZ based contractors, they can use any rate down to 10%.
What does this mean?
If you select a lower tax rate, it means you can pay less tax through the year but you may have to pay a catch up payment at the end of the year if you have underpaid.
If you over pay tax then you will be entitled to a refund at the end of the year.
It’s a good idea to calculate your likely tax rate and use that. There is a handy tax calculator here. This allows you to estimate your correct rate.
How do you change your tax rate?
This is really important – you must complete an IR 330c for all your payers now to avoid the default rate of 45%. Follow the link above in the first paragraph to get a copy of the IR 330c.
Even if you’re not on schedular payments now, you can still ask your payer to make these deductions and if they agree, you can make voluntary payments through the year. Continue reading “Contractor Tax Changes Effective 1 April 2017”