Changes to taxation for contractors wef April

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Forums › Finance and wealth management › Changes to taxation for contractors wef April

Geektastic

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#209139 14-Mar-2017 12:00

My wife works on contract through a recruitment agency on long term projects (usually 12-24 months). The client pays the agency who pay her.

Yesterday she received an email from the agency informing her that taxation of contractors is changing and withholding tax must now be deducted at source. This was the first she had heard of it from either the agency or our accountants.

We already pay a hefty provisional tax bill and there is no mention in anything I can find that outlines whether contractors in her situation will no longer be paying provisional tax. If we have to pay both provisional tax AND withholding tax this seems both unfair and likely to cause significant financial disruption to us and probably to many other people.

We've asked the accountants for advice but I wondered if anyone here was working in the same way (as lots of IT people do) and whether anyone had seen any more information?

networkn

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#1736294 14-Mar-2017 12:23

Honestly, your best bet would be to go directly to the source and ask the IRD. That way there is no misinformation being given to you.

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marej

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#1736318 14-Mar-2017 13:21

I think this is what you are looking for. Prov tax will be reduced to the extent of withholding tax.

http://www.ird.govt.nz/news-updates/contractor-changes.html?gclid=Cj0KEQjwhpnGBRDKpY-My9rdutABEiQAWNcslENwB2xxqiyeUBtlTtqZWNFw38-AAlWdIk-p9xIZGjYaAsrW8P8HAQ

lokhor

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#1739875 15-Mar-2017 15:19

oh god, provisional tax is super confusing ><

All comments are my own opinion, and not that of my employer unless explicitly stated.

wasabi2k

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#1739886 15-Mar-2017 15:42

lokhor:

oh god, provisional tax is super confusing ><

It's not, it's just super duper tempting to spend your entire invoice and not put 30 odd per cent aside for tax. Which is fine in your first year until 31 March and all of a sudden you have to come up with 35k.

nakedmolerat

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#1739910 15-Mar-2017 16:12

From my understanding, once you have paid RWT, there is no more provisional tax. I think they now consider you as an "employee". You don't have the ability to reduce tax by deducting your expenditure now...

p/s: I am NOT an accountant!

dfnt

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#1739913 15-Mar-2017 16:14

This really seems to kill the appeal of being a contractor in the first place if you're treated like an employee payroll wise.

ANglEAUT

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#1739941 15-Mar-2017 16:44

nakedmolerat: ... p/s: I am NOT an accountant! ...

Good to know. I'll go speak to my accountant.

Please keep this GZ community vibrant by contributing in a constructive & respectful manner.

dfnt

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#1739953 15-Mar-2017 16:57

My accountant advised me that because I contract through my own company, and not direct, it's a business to business transaction as the income goes through my company.

So I continue under the prov tax regime.

He mentioned IRD is concerned about the amount of money being paid out to contractors shown in business tax returns, but not declared as income by the contractors in personal tax returns. So IRD is combating this by taxing at the source.

antoniosk

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#1740005 15-Mar-2017 20:20

Geektastic:

My wife works on contract through a recruitment agency on long term projects (usually 12-24 months). The client pays the agency who pay her.

Yesterday she received an email from the agency informing her that taxation of contractors is changing and withholding tax must now be deducted at source. This was the first she had heard of it from either the agency or our accountants.

We already pay a hefty provisional tax bill and there is no mention in anything I can find that outlines whether contractors in her situation will no longer be paying provisional tax. If we have to pay both provisional tax AND withholding tax this seems both unfair and likely to cause significant financial disruption to us and probably to many other people.

We've asked the accountants for advice but I wondered if anyone here was working in the same way (as lots of IT people do) and whether anyone had seen any more information?

It all depends on how income is being drawn as a contractor. If you were doing simple monthly wage/salary with paye, you are most impacted as now a portion of the gross income is withheld before any additional tax payments like prov tax are paid. A lot of people just paid most of the income as monthly payments after deducting expenses and then paid normal paye, as it avoided the whole provisional tax nastiness. This meant hardly any business tax to pay, but no longer.

If she is taking drawings etc, then she needs to get her prov tax right - and if you are using estimation, you need to be very right :-)

This does NOT replace provisional tax at all - it just means some of the money is collected upfront, and the balance is due at prov tax time.

For example, if she is estimating an average rate of 28% for prox tax purposes, and elects a withholding tax rate of 20% at source... then there is the 8% to be paid when its due and so on, all depending on what she does. She won't be paying more, but the cash is handed over at different times, and that is going to be the trickiest part of the whole arrangement.

As everyone has said already, you REALLY REALLY REALLY need to talk to your accountant about what to do next. I expect all accountants to be in this position - good timing dropping this change right in march, the most busiest time of year as well. That was a sharp move....

________

Antoniosk

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#1740062 15-Mar-2017 21:31

nas:

My accountant advised me that because I contract through my own company, and not direct, it's a business to business transaction as the income goes through my company.

So I continue under the prov tax regime.

He mentioned IRD is concerned about the amount of money being paid out to contractors shown in business tax returns, but not declared as income by the contractors in personal tax returns. So IRD is combating this by taxing at the source.

It sounds like the nasty "Personal Services Income" rules used by the Australian Taxation Office.

You really, really, don't want disgusting messes like that.

Geektastic

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#1740088 15-Mar-2017 22:24

Our accountant advised that it does not apply because our company is GST registered and bills the recruitment company, so we continue as now with provisional tax. The GST part makes it gross company income not personal income and therefore not liable for withholding. Also her work is not the company's only income - we use it for my work, which is completely different in nature, as well.

Next hurdle - convincing the recruitment company that that is the correct answer...!