If you worked in any of these countries, you could be due a Tax Refund

Your Bullsh*t-Free Guide to New Zealand Tax for Working Holidaymakers

Welcome!

Welcome to the Bullsh*t-Free Guide to New Zealand Tax for Working Holidaymakers!

We know that tax can be a confusing subject at the best of times! And it can be even more confusing when you're a Working Holidaymaker and you're trying to come to terms with the tax system of a new country. That's why we've broken New Zealand's tax system down to its basics and created this useful guide.

The following chapters will cover everything you need to know about your tax obligations and entitlements as a Working Holidaymaker in New Zealand and how to easily retrieve your all-important tax refund!

Enjoy!

 

 

 

 

The Working Holiday Visa

A working holiday visa is a document which will allow you to work in New Zealand for a limited period of time while you are on holiday in the country.

The visa allows people (usually aged between 18-30 years old) to work in temporary jobs in New Zealand for a period of 6, 12 or 23 months in order to fund their travels. Although there are a set of requirements and conditions of the visa, it is fairly straight-forward to apply for online. But if filling out all of that boring application paperwork sounds like the last thing you want to do, why not enlist the help of a visa expert like Visa First?

Once you arrive in New Zealand and find a job, it won't be long before you start paying tax! Here's what to expect.

 

Tax Basics

Tax is one of those inescapable facts of life. You'll even have to pay it while you're on a working holiday in New Zealand!

New Zealand boasts a very comprehensive and relatively approachable tax system (called Pay As You Earn or PAYE). In fact, in 2016, the US-based Tax Foundation ranked New Zealand's overall tax system as second in the developed world for its competitiveness - and top for its individual (i.e. personal) taxes!

Key features of the PAYE system in New Zealand

  • No inheritance tax
  • No general capital gains tax, although it can apply to some specific investments
  • No local or state taxes (apart from property rates levied by local councils and authorities)
  • No payroll tax
  • No social security tax

 

Read about New Zealand tax rates here.

 

Taxable Income

In New Zealand, the below types of income are all subject to income tax:

  • salary and wages
  • business and self-employed income
  • most social security benefits
  • income from investments
  • rental income
  • profit from selling capital assets in some circumstances (this does not usually apply to personal assets sold)
  • income a New Zealand tax resident earns from overseas

 

Read about New Zealand tax rates here.

The average New Zealand tax refund is $550

Get yours

Tax Year

Every year, the New Zealand tax year begins on 1 April and ends on 31 March of the following year. If you worked in New Zealand during that time, you can apply for a tax refund after 31 March.

For example, if you worked any time between 1 April 2017 and 31 March 2018, you can apply for a tax refund after 31 March 2018.

Read more about tax refunds here.

 

Residency

Why your status matters

New Zealand tax residents are taxed on 'worldwide income' - income from New Zealand as well as from other countries. In other words, if you are a tax resident in New Zealand and you receive overseas income you'll have to declare it for tax.

In these circumstances you will generally be entitled to a foreign tax credit for any foreign tax paid. However, the credit is limited to the:

  • lesser of the amount of tax paid overseas
  • amount of New Zealand tax that's payable on the overseas income
    or
  • rate applicable under the relevant double tax agreement (DTA)

 

Read more about double taxation agreements (DTA) here.

Tax residents of New Zealand can also continue to be eligible for Working for Families Tax Credits.

Note: There is no tax on cash or personal assets you bring into New Zealand.

Am I a resident or non-resident for tax purposes?

Simply put, you're a non-resident for tax purposes in New Zealand if you stay less than 183 days in any 12-month period and don't have an 'enduring relationship' with New Zealand.

You're a tax resident in New Zealand if you:

  • are in New Zealand for more than 183 days in any 12-month period and haven't become a non-resident
    or
  • have a 'permanent place of abode' in New Zealand 
    or
  • are away from New Zealand in the service of the New Zealand government.

 

The 183-day rule

If you're in New Zealand for more than 183 days in a 12-month period, you're considered to be a New Zealand tax resident from the first of these 183 days.

It's important to note that the 183 days don't have to be consecutive. For example, if you come to New Zealand for 10 days in April and then return for 20 days in September of the same year, it will be counted as 30 days. What's more, even if you're only in New Zealand for part of a day it will be counted as a full day. This means that the day you arrive or depart are treated as full days present in New Zealand.

1

Johan is from Berlin. He plans a working holiday in New Zealand and in January 2017 he moves to Christchurch. In November 2017, Johan decides to end his working holiday and returns to Berlin. Having spent more than 183 days in the country, Johan is considered a resident for tax purposes in 2017.

2

Sophie is from Vienna. She applies for a 6 month working holiday visa in New Zealand. When her application is accepted she travels to Auckland and arrives on 1 July 2017. She decides to return to Austria in time for Christmas and leaves New Zealand on 20 December 2017. Having spent less than 183 days (she was in New Zealand for 173 days in total) in the country, Sophie will be considered a non-resident for tax purposes.

A permanent place of abode in New Zealand is your....

  • lasting or enduring place where you usually live
    or
  • place in which you can live or dwell when required, in a locality with which you have a durable connection and that is a current focal point of your living

 

To be a permanent place of abode the dwelling must be a place that you are able and likely to live on an enduring rather than a temporary basis.

If there is somewhere in New Zealand that you could live then you need to consider:

  • what your ties and links with New Zealand are
    and
  • whether these are strong enough to establish that you have a permanent place of abode in New Zealand

 

What are ties and links to New Zealand?

Some of the ties and links to New Zealand that you'll need to consider include:

 

If you have ...... Then consider ......
presence in New Zealand  how much time you spend in New Zealand 
accommodation how you've previously used the accommodation you have in New Zealand and your connection with it, ie, whether you own it, lease it or control it
family and social ties where your family live (especially immediate family) and if you belong to any New Zealand clubs, associations or organisations
economic ties if you have bank accounts, credit cards, investments, life insurance or superannuation funds here
employment or business if you run a business here, if you're employed here, if you have or may have employment to return to, the terms of any employment contract
personal property if you have vehicles, clothing, furniture and other property or possessions kept here
intentions whether you intend to come back to New Zealand to live, and if you do, when
benefits, pensions and other payments   whether you receive any welfare benefits, pensions or other payments from New Zealand agencies or organisations

 

Note:
Even if you maintain ties (or a physical home) in other countries you can still be a New Zealand tax resident. As long as you have a permanent place of abode in New Zealand you'll always be a resident.

Leaving New Zealand

Until you have been out of New Zealand for 325 days in any 12-month period and you don't have a permanent place of abode in New Zealand, you will still be considered a tax resident.

Continuing to receive New Zealand income when you are no longer a tax resident

You still need to declare income from a New Zealand source and pay the right amount of tax on it, even if you're no longer a New Zealand tax resident.

If your only income from New Zealand is interest, dividends or royalties, and the correct amount of non-resident withholding tax (NRWT) is deducted, you won't need to file a non-resident return. The law is different for industrial royalties and interest paid to associated persons and you will have to file a non-resident tax return if you receive this income.

 

Goods and services tax (GST)

What is it?

The Goods and Services Tax is tax on almost anything you purchase. It's the main type of tax in New Zealand (apart from income tax) and residents and non-residents are liable to pay it.

It's an indirect tax, which businesses (including retailers) charge as part of the cost of goods and services they supply.

So you will become very familiar with GST on your working holiday – particularly if you work in a shop or restaurant and you have to charge it to your customers!

What is the rate of GST?

The GST rate is 15% and it's applied to all good and services (with some rare exceptions).

What is GST charged on?

GST is charged on:

  • food
  • medication
  • doctor visits
  • the hairdressers
  • many the activities you are likely to do as a traveller in New Zealand
  • and much more

 

GST exceptions include:

  • rental of residential property
  • Duty free items
  • financial services such as mortgages, loans and investments, bank services (including interest)
  • and the sale of a business that is capable of being carried on by the purchaser as a taxable activity (going concern)

 

Can a taxpayer get a GST refund?

When a business buys goods or services from suppliers, it can claim a credit for the GST the suppliers charge on these purchases. However, taxpayers can't claim a deduction or refund for GST in this way.

Is GST always included in the displayed price?

No, not all of the time. But most of the time, businesses will include GST in the prices they display. Where you see '+GST' displayed on a price tag, you will have to add the GST to that price to determine the total cost.

How to work out the GST you have paid

The easiest way to calculate the GST is to multiply a price by 3 and then divide it by 23.

Example:

Example: If your grocery shopping comes to $64...
64 x 3 = 192
192 / 23 = 8.35

So there is $8.35 of GST in your $64 shopping bill.

 

The average New Zealand tax refund is $550

Get yours

 

 

The PAYE System

The tax system in New Zealand is called 'Pay As You Earn' (PAYE). Fortunately for Working Holidaymakers who are not familiar with the tax system in New Zealand, it is relatively easy to understand.

In the PAYE system, tax is usually deducted by your employer before you receive your pay. In other words, you can keep the income that comes into your bank account!

 

Tax rates

The income tax rates in New Zealand are as follows:

 

The average New Zealand tax refund is $550

Get yours

Tax returns

Taxpayers are only legally obliged to file a personal tax return under certain circumstances.

For instance, if you have overseas income, or arrived part way through a tax year (the tax year runs from 1 April to 31 March), you are required to file a return.

So most Working Holidaymakers will need to file a return in their first year in New Zealand.

Even if you're not obliged to file a tax return for a particular tax year, there is one major benefit to doing so – you can apply for your tax refund.

For many Working Holidaymakers, the prospect of filing a tax return can be quite daunting. Fortunately, you don't have to file your return yourself. Taxback.com have over 20 years of experience in filing tax returns and retrieving tax refunds for Working Holidaymakers.

Our average tax refund for New Zealand is $550. Get started here.

 

Double Tax Agreements (DTAs)

New Zealand has a network of 40 Double Tax Agreements (DTAs) in force with its main trading and investment partners. You may be a tax resident in both New Zealand and another country. The purpose of a DTA is to ensure that you are not taxed twice (in two separate countries) on the same income.

DTAs decide which country has the first or sole right to tax specific types of income.

New Zealand has DTAs and protocols in force with each of the countries below.

 

Australia  Austria Belgium Canada
Chile China Czech Republic Denmark
Fiji Finland France Germany
Hong Kong India Indonesia Ireland
Italy Japan Korea Malaysia
Mexico Netherlands Norway Papua New Guinea
Philippines Poland Russian Federation Samoa
Singapore South Africa Spain Sweden
Switzerland Taiwan Thailand Turkey
United Arab Emirates United Kingdom United States of America Viet Nam

 

KiwiSaver

KiwiSaver is a voluntary savings initiative designed to make it easier for New Zealanders to save for their future and retirement. It deducts 2%, 5% or more from your earnings and saves it for you in a government trust fund.

KiwiSaver is open to all New Zealand citizens and people entitled to be in New Zealand indefinitely who are under the age of eligibility for New Zealand superannuation (currently 65).

In other words, visitors to New Zealand (such as Working Holidaymakers) and non-residents are not eligible to join. If you're working and your employer starts deducting KiwiSaver contributions from your salary or wages, you should inform them that you're not eligible. You will not be deducted anymore and your previous deductions will be reimbursed to you.

 

Overseas income

If you are a Working Holidaymaker (and you are considered a resident for tax purposes) in New Zealand, you must pay income tax on your worldwide income (even if you don't bring it into New Zealand). However, if your overseas income has already had tax deducted from it (for example in your home country), you will generally be able to claim a credit for this overseas tax against the New Zealand income tax on the overseas income. The amount of credit you can claim is limited to the lesser of:

  • the overseas tax paid
    or
  • the New Zealand income tax payable on the overseas income

 

Read more about residency status here.

 

IRD Number

 

 

What is it?

Before you can start working in New Zealand, you need to get yourself an IRD number. This is the unique tax number given to you by the Inland Revenue Department in New Zealand so that you can pay the correct taxes as you work.

Do I really need it?

Yes! Without an IRD number, you could be paying up to 46.7% of your wage on taxes. So, if you're on a working holiday in New Zealand, it's a good idea to get an IRD number as soon as possible after you arrive in the country.

How do I get an IRD?

You can apply for your IRD number online yourself. Or, if you don't like dealing with paperwork, Taxback.com can apply for an IRD number on your behalf.

What will I need?

  • Internet access
  • Passport
  • Immigration New Zealand Application Number
  • Your tax identification number from your home country
  • Your New Zealand bank account details

 

How long will it take to get an IRD?

If you apply online (and include all the requested information in your application) and choose to get your IRD number sent to you by email or text message, then it should take two working days to receive your IRD number. If you choose to receive your IRD number through the mail, then it may take up to a further 10 days to reach you.

If you apply using a paper form, then expect similar timeframes to those mentioned above, but you will need to factor in the postage time – so it could be a further two days.

 

Tax refunds

When you are working in New Zealand on your working holiday, it's more than likely that tax will be deducted from your wages. No surprises there!

But what you may not know is that you could be entitled to a tax refund. Every year thousands of Working Holidaymakers miss out on claiming back their hard earned cash. And if you think it won't be worth your while claiming your refund, think again! Taxback.com's average New Zealand tax refund is $550!

The amount you get back will depend on a number of factors including:

  • The amount you earned
  • The length of time you've been working in New Zealand
  • The type of work you did
  • And how much tax was withheld from your wages

 

The average New Zealand tax refund is $550

Get yours

 

To get your tax refund you will need either your Summary of Earnings or your final payslip when you are filing your tax return.

Of course, you could file your tax return yourself and apply for a refund. However, this process can be complicated and, if you make an error, the responsibility will lie with you. Plus, retrieving your refund can sometimes be tricky if you have left the country or you are attempting to get tax back from a few years ago (you can go back as far as 2008 to get your New Zealand tax back).

But the easiest way to get your tax back is to apply with Taxback.com.

The advantages of choosing Taxback.com

  • You get your maximum legal tax refund
  • You can use our online tax refund estimation calculators for free
  • We guarantee that your tax return is legal and compliant with New Zealand tax law
  • You can use our document retrieval service
  • You get 24-hour customer support and tax refund help
  • We can send your refund worldwide in 30 currencies!
  • Pay nothing upfront

 

It's FREE to get a New Zealand tax refund estimate with Taxback.com. Find out what you're owed here.

Note: once your application is complete, it will usually take approximately 6 – 10 weeks before your refund arrives in your account.

 

 

Accident Compensation Corporation (ACC) levy

The Accident Compensation Corporation (ACC) levy provides for New Zealand's accident insurance scheme. This levy is charged to cover the cost of rehabilitation and compensation following non-work related injuries.

If you work in New Zealand's PAYE system your employer will deduct this levy from your pay (like a tax). If you're self-employed you will receive a levy invoice after you file a tax return.

 

Income liable for earners' levy includes:

  • salary and wages (overtime, backpay, holiday pay, long service leave, bonuses or gratuities and taxable allowances)
  • shareholder-employee salaries
  • salaries to partners in a partnership
  • salary or wages to owners in a look-through company (LTC)
  • active income from a look-through company
  • income from self-employment

 

Income exempt from the levy includes:

  • retirement payments
  • redundancy payments
  • non-taxable allowances
  • rents
  • interest and dividends
  • estate and trust income
  • royalties
  • income for a partnership earned by a non-active partner
  • income for a look-through company (LTC) by a non-active owner
  • jury fees
  • witness fees
  • taxable and non-taxable pensions
  • free or discounted shares received under an employee share scheme

 

ACC Rate

Income year - Earners' levy rate (GST-inclusive) - Maximum income earners' levy charged on - Maximum levy anyone can pay

1 April 2018 to 31 March 2019 - $1.39 per $100 (1.39%) - $126,286 - $1,755.37

 

Non-resident withholding tax (NRWT)

If you're a non-resident for income tax purposes, you'll need to give your overseas address to every organisation in New Zealand if you receive interest, dividends and royalties from. Non-resident withholding tax (NRWT) may be deducted from this New Zealand income before you receive it. The rate of NRWT deducted depends on whether New Zealand has a double tax agreement (DTA) with your country of residence, and the terms of that DTA.

NRWT rates

The types of income and the rates of NRWT are:

  • dividends 0-30%
  • interest 10-15%
  • royalties 10-15%

 

Tax codes

When you start a new job in New Zealand your employer will give you a Tax Code Declaration form (IR 330). When you are filling out the form you will need to note some lettered tax codes. If you don't fill out this form correctly, you could end up being taxed significantly more than necessary.

Read more about the IR330 here.

Here are the tax codes that apply to most Working Holidaymakers in New Zealand:

Main Source of income - M

The most common tax code for Working Holidaymakers is 'M'. This means the job that the IR330 form is for is your main/highest source of income, and:

  • You don't need to pay off a New Zealand student loan
  • You don't have an annual income between NZ$24000-48000
    and 
  • you're not entitled to Working for Families Tax Credits or NZ Super, Veteran's Pension or any overseas equivalent

 

Secondary Income

If the IR330 you're filling out is for a job that is not your highest source of income, you'll need to supply a secondary income tax code.

Your secondary income tax code will be determined by how much your combined annual income is and whether you are paying off a student loan.

The below are the most common secondary income tax codes for Working Holidaymakers:

SB - if your annual income from all sources is less than NZ$14000
S - if your annual income from all sources is between NZ$14001 and NZ$48000
ST - if your annual income from all sources is between NZ$48001 and NZ$70000

Other tax code options:
There are some tax code options for specific occupations in New Zealand and the below commonly apply to people on a working holiday.

CAE – this tax code is for casual agricultural workers working on a day-to-day basis for up to three months, including shearers and shearing shedhands.

EDW – this code is for Election Day workers

Recognised Seasonal Workers – this refers to people employed under the Recognised Seasonal Employers' Scheme in the horticulture or viticulture industries, with a valid visa or Recognised Employer Work Policy permit.

WT – this tax code is for independent contractors, not employees. You can find the list of types of contractor work on page four of the IR330.

STC – this is for special tax codes. You can use this code if you are authorised:

  • deduct no tax at all
  • deduct tax at a special rate
  • make PAYE deductions using a specific rate
    or
  • deduct ACC earners' levy only

 

Read more about tax codes here.

 

Deductible Expenses

There are very few tax expenses or deductions for PAYE workers in New Zealand.

Any fees you have paid for your tax return and Income Protection premiums can be included on your list of deductions.

Income Protection Insurance Deductibility

Many people in New Zealand have Income Protection insurance policies. These are claimable in your personal income tax return (whether you are in business or in paid employment) as long as any proceeds upon making a claim are treated as taxable income.

Usually your insurance company will send out a letter after the end of each financial year detailing the amount you've paid on your premiums and the portion that is tax deductible. Remember to keep these statements so that they can be included in your tax return at the end of the financial year.

 

Tax credits

Independent earner tax credit

If you earn between $24,000 - $48,000 and you're a tax resident of New Zealand you may be entitled to the independent earner tax credit (IETC).

If you're entitled to the credit you'll receive:

 

Income Credit
$24,000 - $44,000
$10 per week ($520 a year)
$44,001 - $48,000 entitlement reduces by 13 cents per each dollar over $44,000

 

Example

Peter earns $44,000 and qualifies for ITEC. His entitlement for the year is $520 ($10 per week).

Meanwhile, Sarah has and income of $47,000. The value of her IETC entitlement is reduced by 13 cents for every dollar she earns over $44,000.

$3,000 x $0.13 (reduction rate) = $390
$520 (maximum IETC) - $390 = $130
Sarah's IETC entitlement for the year is $130 ($2.50 per week).

Income can include:

  • salary or wages, including ACC and paid parental leave
  • self-employed and/or business income
  • investment income

 

You will not be eligible for IETC if:

  • you or your partner are entitled to Working for Families Tax Credits
  • you receive an income-tested benefit, including:
    - emergency benefit
    - jobseeker and sole parent support
    - supported living, young parent, and youth payments
  • you receive a Veteran's Pension
  • you receive New Zealand superannuation 
    or
  • you receive an overseas equivalent of any of the above

 

Claiming IETC

Firstly, the IETC can only be claimed from your main source of income. If you earn between $24,000 and $48,000 from your main income source, you'll benefit from the IETC each time you're paid.

To claim the credit, you'll need to complete a tax code declaration (IR330) with the ME or ME SL tax code and give it to your employer before your next pay day.

If you don't earn more than $24,000 from your main job, but your income from all sources is between $24,000 and $48,000, you can claim your IETC by requesting a personal tax summary.

 

Earning less than $24,000

You will not be entitled to IETC if you earn less than $24,000 in a year. And if you claim any amount of the credit you will have to repay it.

 

 

In January, Harry begins employment in a role with a salary of $34,000 a year.

He receives 13 salary payments between January and the beginning of April earning $8,500 and claiming $130 IETC.

Harry leaves his role at the beginning of April and doesn't earn income until he begins a new role at the beginning of August. Between August and the end of the year, Harry earns $14,000 which takes his total income for the year to $22,500.

As he earned less than $24,000 in the year he is not entitled to IETC and must pay back to $130 he claimed.

 

 

Donations

If you made a donation of over $5 towards a charitable organisation or school then you may be able to claim part of it back as a tax credit (donations rebate). To claim a tax credit you need to file a Tax Credit Claim Form (IR526) for the relevant tax year.

You can claim a tax credit if you:

  • made a donation of $5 or more to an approved donee organisation where there is no identifiable direct benefit to you or your family
  • earned taxable income (such as salary or wages, benefit, NZ Super, self-employed income, interest and dividends) during the year you're claiming for
  • were resident in New Zealand at any time during that tax year
    and
  • are an individual (not a company, trust or partnership)

 

You'll need to keep receipts!

You need receipts to show that you made a donation of $5 or more to:

  • approved donee organisations
  • approved New Zealand religious organisations
  • medical research schools and universities
  • approved overseas aid funds
  • kindergarten associations (excludes private kindergartens or other early childcare fees)
  • state and state integrated schools, or their board of trustees (the payments can either be 'donations' or payment of 'school fees' if they go to the school's general fund)
  • other schools who have been approved as donee organisations (the payments must be 'donations')
  • parent-teacher associations (the payments must be 'donations')

 

Your receipt(s) must contain:

  • the name of the donor(s)
  • the amount and date of the donation
  • a clear statement that it is a donation
  • a clear statement at the top of the page if the donation is a payroll giving donation
  • the signature of an authorised person
    and
  • an official stamp with the name of the approved donee organisation
  • the word 'copy' or 'replacement' should be clearly shown on any replacement receipt

 

Maximum amounts you can claim
The total donations you claim can't exceed your taxable income for the year. If they do, you can claim donations up to the amount of your taxable income.

The maximum tax credits you can claim are the lesser of:

  • 33.3333% of the total donations you've made, or
  • 33.3333% of your taxable income

 

The average New Zealand tax refund is $550

Get yours

 

Are you Self-employed?

Most Working Holidaymakers in New Zealand will have no tax filing obligation (aside from in their first year). This is because they are part of the PAYE tax system and there is no automatic tax filing requirement if you are part of this system.

However, if you're not earning income in New Zealand through the PAYE system – for example if you are self-employed, run a company or have worked for cash – you will need to file an IR3 tax return.

In other words, you'll need to file an IR3 return if you earned income that is not:

  • Salary
  • Wages
  • Interest
  • Dividends
  • and/or taxable Māori authority distributions

 

The purpose of filing an IR3 tax return is that you declare

  • what your income was during the year
  • how much tax you paid on your income
  • any business expenses you claimed

 

and to discover whether you're entitled to a refund or if you have tax to pay.

You'll also need to file an IR3 return if you:

  • have losses to claim or brought forward from the previous year
  • have excess imputation credits brought forward from the previous year
  • left or arrived in New Zealand part-way through the year
  • are filing a return for a deceased person to the date of death (if there is a requirement to file a return for the income year)
  • were declared bankrupt part-way through the year (if there is a requirement to file a return for the income year)
  • changed your balance date part-way through the year
  • received allocated income from a portfolio investment entity that was taxed at a rate lower than your correct rate
  • choose to include dividends received from a portfolio investment entity listed on the New Zealand Stock exchange, in order to claim imputation credits

 

How do I file an IR3?

If you are required to file an IR3 return you must do so by 7 July. You can file an IR3 form yourself - either online or on a paper form.

Alternatively, if you would rather not fill out all of the paperwork, Taxback.com can file your tax return for you.

Advantages of filing with Taxback.com

  • It's super easy!
  • Your tax return is guaranteed to be legal and compliant with New Zealand tax law
  • You'll get your maximum legal tax refund (our average New Zealand tax refund is $550)
  • You can use any of our online tax refund estimation calculators for free
  • You can use our document retrieval service
  • You get 24-hour customer support and tax refund help
  • You can contact us via free phone, free fax, free post, free online tax help with our live chat!
  • No language barriers – you can talk to us in 26 languages!
  • We can send your refund to you anywhere in the world in 30 currencies

 

What happens if I don't file a tax return?

You may be subject to interest charges and penalties if you:

  • File your tax return late
  • Pay your tax liability late
  • Underpay your tax liability

 

Late filing

If you file your tax return late, the amount of penalty you will have to pay will depend on your net income.

Net income Penalty
Less than $100,000 $50
$100,001 to $1 million $250
More than $1 million $500

 

Late tax payment

You may also be subject to penalties if you're late paying your tax liability. These penalties are charged in stages.

This means that the longer a payment remains overdue, the more penalties you will be subject to.

The stages are:

  • 1% - the day after the due date
  • 4% - seven days later
  • 1% - each month the tax to pay remains overdue

 

Shortfall on tax payment

Penalties on tax shortfalls are calculated as a percentage of the tax shortfall.

Shortfall penalty categories Standard %
Not taking reasonable care 20%
Unacceptable tax position 20%
Gross carelessness 40%
Adopting an abusive tax position 100%
Evasion 150%

Shortfall penalties are usually due 30 days after the date you are issued with a notice of assessment or statement showing the penalty.

 

Claiming business expenses

When you're self-employed or own a business in New Zealand, some of the costs of running a business can be claimed as expenses for tax purposes.

These expenses can be deducted from your business income to give you your net profit (which will be subject to tax).

Software

Certain types of software can be included on your list of deductibles.

Although the first thing to note is that if you purchase software for business use it can't be included as a tax deduction as it is a capital expense (you can claim depreciation on software purchased over its life).

However, when you pay a periodic fee for the right to use or access software for use in a business, these payments can be considered a deductible.

For example, Kevin is working as a self-employed graphic designer while on a working holiday in New Zealand. He pays a monthly subscription fee of $50 to access design software online. This fee is deductible as a periodic payment to access software.

Mileage rate

If you're self-employed in New Zealand you may be able to include some of the cost of using your motor vehicle as a tax deductible.

Standard mileage rate for motor vehicles

  • $0.73 per kilometre – petrol vehicles
  • $0.73 per kilometre – diesel fuel vehicles
  • $0.73 per kilometre – Hybrid vehicles
  • $0.81 per kilometre – Electric vehicles

 

Note: The $0.73 per kilometre rate applies irrespective of engine size. It doesn't apply to motorcycles.

You can use these rates for up to a maximum of 5,000 km of work-related travel per year. For distances greater than 5,000 km, you must keep a record of actual vehicle expenses.

Actual costs

If you believe your vehicle costs are higher than the rates given you can use the actual costs option. Although, if you use this method you must keep accurate records including details of private and work-related expenses. Your records will need to show the reasons for and the distances of journeys for business travel.

Logbook method

Another option you can use for motor expenses is the 'logbook method'. The first step is to keep an accurate record of the business use of your vehicle in a logbook for a period of at least 90 days. After 90 days you can work out the average proportion of business to private use of your vehicle. The logbook term is up to three years, provided variance of business use is less than 20% of the logbook representation.

Your logbook must record the:

  • start and end of the 90-day test period
  • vehicle's odometer readings at the start and end of the test period
  • distance of each business journey
  • date of each business journey
  • reason for each business journey

 

You can use your logbook to calculate the deduction for the costs you incur and the amount of depreciation loss for the business use of your motor vehicle.

 

Using your own vehicle

If you use your vehicle strictly for business, you can claim the full running costs, without making any adjustments. However, if you use the vehicle to travel from home to work, or any personal travel, you will need to separate the running costs of your vehicle between business and private use. (Travel between home and work is not classed as business use.)

Travel

If you spend time travelling as part of your business you can claim business travel as an expense. If you intend to deduct travel expenses it's a good idea to keep a detailed dairy of your travel costs and your receipts.

In addition to invoices and tickets you should also keep details of:

  • the reasons for the trip
  • the date of the trip
  • your itinerary
  • the cost of car hire, and air, bus and taxi fares
  • the cost of accommodation, meals and incidentals
  • the time spent on business and non-business activities

 

Note: the cost of travelling from home to work is not a tax-deductible expense.

Working from home

If you work from home there are a number of costs you can include on your list of tax expenses.

If you are doing this, you can make a claim for the area set aside so long as you keep a full record of all expenses you wish to claim.

You can claim a portion of the household expenses, such as:

  • Insurance
  • Utilities
  • Mortgage interest

 

You must keep invoices for these expenses. It's important to note that no deduction is permitted for any private or domestic expenditure. You can only claim the expenses that relate to the area used for business.

 

Internet

If you run your business from home you may need to use the internet as part of carrying out your business. The portion of the expenditure relating to business usage may be claimable as a business expense. You can't claim any part of the internet expense relating to the household's private usage.

How the proportion of business-related internet expense is calculated will depend on the type of internet plan you have. You must calculate the business proportion you claim by a method that ensures a fair and reasonable result. You must also meet normal record keeping requirements.

Entertainment

If you provide entertainment for staff or clients, some of these business expenses can be included as tax deductibles.

Entertainment expenses can include:

  • Food and drink
  • Social events
  • Trips
  • Accommodation
  • Privileges
  • Musical
  • Sporting or theatrical events
  • Freebies (free samples)

 

A business-related entertainment expense may be 50% or 100% deductible

Note: You can't deduct your private entertainment expenses, even if you pay for them from a business bank account.

There are very specific rules for how you deduct business related costs. Some expenses are 100% deductible, while others are 50% deductible.

50% deductible entertainment expenses

In general, any entertainment away from work or out of usual work hours has a private element and therefore can't be fully expensed. Some examples include:

Corporate boxes

 Expenses for entertainment you provide in:

  • boxes
  • marquees
  • tents

 

or similar exclusive areas (permanent or temporary) at cultural, sporting, other recreational events or away from your business premises, are only 50% deductible.

Holiday accommodation

If you have business expenses for a holiday home, timeshare apartment or similar venue, you can deduct only 50% of the cost of accommodation as well as 50% for food and drink expenses relating to using the accommodation.

Recreational boats

You can deduct 50% of the cost of food and drink accompanying the use of a recreational boat such as:

  • yachts
  • launches
    or
  • similar recreational boats

 

Food and drink at work

You can deduct only 50% of the cost of food and drink you provide at your business premises (other than light refreshments). Examples include:

  • at a social event, eg, celebration meal, party, reception
    or
  • in an area restricted to senior employees, such as an executive dining room

 

This rule applies whether the entertainment is provided to staff or to guests invited from outside the business.

Offsite food and drink

Food and drink provided away from your business premises (such as business lunch at a local restaurant) is only 50% deductible too.

Gifts of food and drink

Gifts of food and drink (such as a bottle of champagne or a gift basket of wine and cheese) that will provide a private benefit to the recipient and a business benefit to the taxpayer are only 50% deductible.

 

100% deductible entertainment expenses

The following entertainment expenses are 100% deductible:

Food and drink while travelling on business

 If you or one of your employees buys a meal while travelling on business, the cost is 100% deductible. This includes:

  • A meal purchased while travelling on business
  • Food and drink you provide at a conference, education course or similar event
  • Light refreshments, like morning and afternoon teas

 

 

Freebies

You can deduct 100% of the cost of freebies (free samples) promoting your business.
Although, you can only deduct 50% of the cost of freebies you give employees or people associated with you.

Entertainment for review

Entertainment (such as a free meal to a food critic) which you provide to someone who's going to review it for publication (eg, in a magazine, newspaper or on a website) is 100% deductible.

Entertainment supplied for charity

You can deduct 100% of the cost of entertainment you supply to the general public for charitable purposes.

Claiming expenses – penalties and interest

If you make a mistake with your expenses, you may be charged penalties. Unpaid amounts may also be liable for interest. So it's important to double check your deductions before you file your return.

Expense checklist:

Have you:

  • kept complete records
  • deducted only business-related expenses
  • worked out which expenses are 50% deductible and which are 100% deductible?

 

IR330 - Tax Code Declaration form

 

When you're on a working holiday in New Zealand you must complete a Tax Code Declaration form (IR330) if:

  • you start a new job (you must complete a separate Tax Code Declaration (IR330) for each source of income you have)
  • your situation changes and you need to change your tax code
  • you've repaid your student loan in full
  • you start or stop being eligible for the Independent Earner Tax Credit
  • you already have a job and you think your tax code is wrong (you may need to ask your employer which tax code you're on)

 

Once you complete your IR330, give it to your employer.

 

What will happen if I don't complete IR330?

If you don't complete an IR330, you will have to pay PAYE tax at a much higher rate (46.39 cents in the dollar) than standard.

What you'll need to complete an IR330

  • Your name
  • IRD number
  • Tax code
  • Details of your entitlement to work in New Zealand

 

Choosing the correct tax code

It's your responsibility to ensure your employer has the correct tax code for you. If you choose the wrong tax code, you may not pay enough towards your tax and student loan obligations (if applicable) and you could end up with a bill to settle the surplus.

Read more about tax codes here

IR330C

If you're a contractor receiving scheduler payments you'll need to complete a tax rate notification form for contractors (IR330C).

 

IR742 application form

Any person, individual or business required to pay tax in New Zealand needs an IRD number.

So when you arrive in New Zealand for your working holiday it's a good idea to prioritise getting your IRD number. You could work in New Zealand without an IRD number but you will be charged a "no-declaration rate" which is considerably higher than the normal rate.

The easiest way to get an IRD number is to apply online.

Alternatively, if you can't apply online, you can fill out a IR742 application form. The form can be downloaded online or found in most New Zealand Post Shops. When it's complete, return it to the Post Shop along with all relevant documents.

To apply for an IRD number you will need:

  • proof of a fully functional New Zealand bank account
    or
  • a completed customer due diligence form
  • Providing these documents will speed up the process

 

If you are unable to provide either proof of a fully functional New Zealand bank account or completed customer due diligence, you will need to satisfy Inland Revenue of your identity.

 

IR526 Tax credit claim form

There are two main tax credits that can be claimed in New Zealand – the independent earner tax credit and tax credits for donations.

More information on tax credits can be found here.

To claim the IETC you will have to complete a Tax Code Declaration form (IR330).

However, to claim a tax credit for donations you also need to file a IR526 (Tax Credit Claim form) for the relevant tax year.

You should complete this form if you:

  • received taxable income, for example salary or wages
    or
  • have valid receipts for donations of $5 or more made to approved donee organisations

 

When you are filling in this form you'll need:

  • receipts for all donations that you'd like to claim
  • the bank account number you'd like this tax credit paid into

 

Personal tax summary (PTS)

What is a personal tax summary (PTS)?

A PTS shows your income and tax deduction details for a particular tax year. These details are based on your employment, pension or benefit information which is held by your employer.

Your PTS tells you if you've:

  • overpaid your tax and are due a refund
    or
  • underpaid your tax and have tax to pay

 

Note: If you owe $20 or less, it will be written off. You don't need to do anything.

 

How do I get my PTS?

The New Zealand tax authorities will automatically send you your PTS by mid-July each year if you:

  • received Working for Families Tax Credits and earned over:
    - $36,350 for the 2013 tax year and onwards
    - $36,827 for the 2010, 2011 and 2012 tax years
    - $35,914 for the 2009 tax year
  • used the wrong tax code
  • used a special tax code
  • used a casual agricultural employee (CAE) or an election day worker (EDW) tax code and earned more than $200 from that source
  • received income as an IR56 taxpayer only
  • had a student loan for tax years from 1 April 2012
    and
  • had $1,500 or more of adjusted net income
    and
  • your total income (including any other salary or wages) is $1,500 or more above the annual repayment threshold
    and
  • you didn't become a new borrower on or after 1 January of the tax year

 

If you're not due to receive your PTS automatically, you can instead request that the New Zealand tax authorities send it to you. You'll need your PTS if you want to apply for your tax refund.

You may be entitled to a refund if you:

  • were entitled to the independent earner tax credit, but didn't receive it all during the year from the 2010 tax year
  • had more than one job during the year
  • worked for only part of the year
  • can claim expenses against your income

 

IR3 – Tax return

What is an IR3 form?

An IR3 is a personal tax return form in New Zealand.

The average New Zealand tax refund is $550

Get yours

 

Should I file an IR3 return?

For most tax payers in New Zealand, there is no annual tax filing requirement. That's because the tax you pay is a final tax and no return is required. However, if you earned income in the same year you travelled to New Zealand for your working holiday, you will have to declare this on a tax return.

You will also need to file an IR3 return if you earned income other than:

  • Salary
  • Wages
  • Interest
  • Dividends
  • and/or taxable Māori authority distributions

 

Examples of 'other' income include:

  • rental income
  • income from a taxable property sale
  • self-employed or business income
  • overseas income
  • income from cash jobs or 'under the table' payments
  • income from an illegal enterprise
  • royalties
  • more than $200 of schedular payments (formerly withholding payments)
  • estate, trust or partnership income
  • distribution of income/loss from a look-through company (LTC)
  • over $200 of overseas interest and dividends that did have tax deducted
  • overseas interest and dividends that didn't have tax deducted
  • income without PAYE deducted, such as shareholder-employee salary or a claim received under a taxable loss of earnings policy
  • allocated income from a portfolio investment entity that was taxed at a zero rate
  • received portable superannuation or Veteran's Pension (note - due to this late change the requirement to file an IR3 return is not shown in the 2010 IR3 return guide)

 

You'll also need to file an IR3 return if you:

  • have losses to claim or brought forward from the previous year
  • have excess imputation credits brought forward from the previous year
  • left or arrived in New Zealand part-way through the year
  • are filing a return for a deceased person to the date of death (if there is a requirement to file a return for the income year)
  • were declared bankrupt part-way through the year (if there is a requirement to file a return for the income year)
  • changed your balance date part-way through the year
  • received allocated income from a portfolio investment entity that was taxed at a rate lower than your correct rate
  • choose to include dividends received from a portfolio investment entity listed on the New Zealand Stock exchange, in order to claim imputation credits

 

How do I file an IR3?

You can file an IR3 form yourself - either online or on a paper form.

Alternatively, if you would rather not fill out all of the paperwork, Taxback.com can file your tax return for you.

Advantages of filing with Taxback.com

  • It's super easy!
  • Your tax return is guaranteed to be legal and compliant with New Zealand tax law
  • You'll get your maximum legal tax refund (our average New Zealand tax refund is $550)
  • You can use any of our online tax refund estimation calculator for free
  • You can use our document retrieval service
  • You get 24-hour customer support and tax refund help
  • You can contact us via free phone, free fax, free post, free online tax help with our live chat!
  • No language barriers – you can talk to us in 26 languages!
  • We can send your refund to you anywhere in the world in 30 currencies

 

The average New Zealand tax refund is $550

Get yours

 

When is the tax filing deadline?

If you are required to file an IR3 return you must do so by 7 July unless you are filing with a tax agent (like Taxback.com!). If you are filing your return yourself you can do so online or via post from May each year.

What will I need to file IR3?

You will need:

  • Your IRD number
  • Your summary of earnings
  • Any other income details, such as overseas, rental property, farming or business income
  • Any interest or dividend statements
  • Any taxable Māori authority distribution statements
  • Any portfolio investment entity investor statements

 

What happens if I don't file a tax return?

If you have a tax liability and you don't file a tax return you could be charged interest and penalties.

If you underpay you'll be charged interest from the day after the original due date for payment. Interest on tax underpayments is charged on the tax owing, which includes accumulated penalties and shortfall penalties.

Note: Interest isn't charged or paid on amounts of $100 or less of underpaid or overpaid tax.

Late payment penalties consist of:

  • initial penalties for paying tax late
    and
  • monthly penalties on any amounts that remain unpaid

 

All initial late payment penalties are applied in two stages:

  • an initial 1% late payment penalty will be charged on the day after the due date
  • a further 4% penalty will be charged if there is still an amount of unpaid tax (including penalties) at the end of the 7th day from the due date

 

Every month the amount owing remains unpaid, a further 1% monthly penalty will be added.

The initial late payment penalties are calculated on the amount of tax that was paid late or that remains unpaid. The monthly penalties are calculated on the amount of outstanding tax plus the initial late payment penalties that were imposed. Late payment penalties start from the day after the due date for payment. If the tax due is increased as the result of a reassessment, a new due date will generally be set for paying the newly assessed tax.

Late payment penalties are not charged on unpaid tax of $100 or less. These penalties also don't apply to student loan or child support payments.

 

 

 

FAQs

Q: What is the tax system in New Zealand called?

A: The tax system in New Zealand is called Pay As You Earn (PAYE).

Q: What are the characteristics of the PAYE system?

A: The PAYE system is fairly straightforward and easy to understand.

Here are some of the key characteristics of New Zealand's PAYE system:

  • No payroll tax
  • No social security tax
  • No inheritance tax
  • No state/local tax
  • No capital gains tax (only on certain particular forms of investments)
  • No healthcare tax (except a very low levy for the New Zealand accident compensation scheme)

 

Q: How much tax will I pay in New Zealand?

A: If you work in New Zealand it's likely you'll pay between 12.5% and 38% income tax on your earnings.

Read more about tax rates in New Zealand

The average New Zealand tax refund is $550

Get yours

Q: Will I be considered a resident or non-resident for tax purposes in New Zealand?

A: You will be considered a tax resident in New Zealand if:

  • you've been in New Zealand for more than 183 days in any 12-month period (and you haven't become a non-resident again)
    or
  • you have a 'permanent place of abode' in New Zealand

 

 

Read more about residency in New Zealand here

 

Q: What are double taxation agreements?

A: New Zealand has double taxation agreements (DTAs) in place with 40 countries around the world. If you are a tax resident in New Zealand, but normally resident in one of the 40 countries, you will not be taxed twice on income you have earned outside New Zealand.

Read more about DTAs here.

Q: When I move to New Zealand, will I have to pay into the KiwiSaver system?

A: KiwiSaver is a voluntary savings initiative designed to make it easier for New Zealanders to save for their future. A person needs to be living (or normally living) in New Zealand to join. Visitors to New Zealand and non-residents are not eligible to join.

Read more about KiwiSaver here.

Q: How Do I determine if I'm entitled to a tax refund

A: If you have worked in New Zealand, there are many reasons why you may be due a tax refund.

The amount you get back depends on a number of factors including:

  • The amount of income that you earned in New Zealand
  • The length of time you've been working in New Zealand
  • The type of work you did
  • How much tax was withheld from your wages

 

The average New Zealand tax refund from Taxback.com is $550 so it's well worth applying.

You can get a FREE tax refund estimate here.

Q: When can I apply for my tax refund?

A: You can apply to get a tax refund once the New Zealand tax year ends. And you can go back as far as 2008 when you are applying for your refund.

Apply for your tax refund here.

Q: Will I need to file a tax return in New Zealand?

A: Most people are not required to file a tax return in New Zealand.

However, if you'd like to retrieve your tax refund you will need to file a tax return.

You can either file the tax return yourself or enlist the help of a tax agent – like Taxback.com – to file your return and retrieve your refund for you.

The average New Zealand tax refund is $550

Get yours

Q: How does Taxback.com work?

A: You can file a tax return with Taxback.com in three easy step:

  1. You register with us
  2. You send us your documents
  3. We do all the hard work involved in filing your return

 

Q: What documents will I need when I am filing a tax return?

A: You will need to have the three documents below:

  1. Summary of earnings or final payslip
  2. Your completed tax pack
  3. A copy of your ID

 

A Summary of Earnings is an official government form you get from the Canadian tax authorities – at the end of the tax year. The document outlines your earnings and the amount of tax you paid during the tax year.

A final payslip is the payslip attached to your last pay cheque. It outlines your earnings and how much tax you paid.

 

Key terms

Pay As You Earn (PAYE)

PAYE is the name of New Zealand's income tax system.

Goods and Services Tax (GST)

Goods and Services Tax (GST) is tax at 15% on all good and services purchased in New Zealand. You can't get a tax refund for GST you have paid.

Tax year

The New Zealand tax year runs from April 1st to March 31st of the following year.

The 183 day rule

If you've been in New Zealand for more than 183 days (they do not have to be consecutive) in any 12-month period you will be considered a New Zealand tax resident from the first of these 183 days.

Tax refund

Every year thousands of Working Holidaymakers overpay tax in New Zealand and are entitled to a refund. Taxback.com's average New Zealand tax refund is $550.

Apply for your tax refund today

IRD Number

Before you start working in New Zealand, it's advisable to apply for an IRD number. Without this, your income will be taxed at the highest possible rate.

Read more about how to apply for an IRD number.

Tax Code Declaration form

When you start a new job in New Zealand you will have to fill in a Tax Code Declaration form. When you are filling in the form you must include your IRD number as well as your tax code (this is a lettered code).

Read more about tax codes here.

Personal tax summaries (PTS)

A personal tax summary (PTS) is a document which shows your income and tax deduction details for a particular tax year.

Your PTS tells you if you've:

  • overpaid your tax and are due a refund
    or
  • underpaid your tax and have tax to pay

 

IR3 tax return

Most Working Holidaymakers will have to file a tax return for their first year in New Zealand. However, you will also need to file this tax return if you want to claim your tax refund or you earned income other than salary, wages, interest, dividends, and/or taxable Māori authority distributions.

 

The average New Zealand tax refund is $550

Get yours

 

About The Author

Mark Corcoran - Digital Content Executive @ Taxback.com

Mark is the Digital Content Executive at Taxback.com. Since graduating from Griffith College Dublin with a degree in Journalism and Visual Media, his work has been published both in print and online.

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