Contracting in NZ, how?

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motozed

13 posts

Geek

Topic # 84450 31-May-2011 15:42

Having been overseas for a while, Im unsure how to go about contracting in NZ. Where I have been the agencies just pay me, but in NZ it appears my rate is daily and I have to operate as a company. Im not looking for anything more than generic advice, I will see an accountant asap.

I have a couple of questions regarding sole trader.

When a company pays me say $100pd + GST, do I collect that $115 a day and then pay the tax at the end of the tax year (gst and payg), is that a legal option?

The reason I ask is I may not be in NZ for longer than the contract which is only 3 months and my tax is clearly going to be a lot lower than estimating 12 months worth.

Thanks

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Reply # 476337 31-May-2011 18:52

Have a look at the IRD web site, search for GST and provisional tax.

You'll need to pay the GST every 6 months and for the income tax you pay at the end of the year.

motozed

13 posts

Geek

Reply # 476339 31-May-2011 18:56

thanks for that. yep did the IRD site, had some good wins out of it.

my main confusion now is about collecting gst.

if i charge my rate + gst, but i dont go over the $60k earnings threshold for the year, what do i do with the gst i collected? i presume i pay it regardless of being over $60k or under. but conversely, what if I dont charge the gst and i do go over $60k, i cant ask the company to pay gst in retrospect.

muppet

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Reply # 476349 31-May-2011 19:26

You basically collect GST on behalf of the govt. Because you don't get to keep it, it doesn't count as earnings.

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scuwp

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Reply # 476375 31-May-2011 20:28

You do not have to start a company, you can just work as a sole trader. Each has their plus and minus points, your accountaint can advise according to your situation.

AFAIK you need to be GST registered only if your gross earnings are or are expected to be over the threshold which is currently at $60K. If you are not GST registered then you do not charge your customers GST, you simply declare your earnings for normal income tax deductions.

The flip side is that if you are GST registered you can claim back the GST on anything you buy or any costs incurred by you/your company.

IRD can take a while to get through to but they are normally quite helpful. maybe worth a phonecall.

Best of luck

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motozed

13 posts

Geek

Reply # 476502 1-Jun-2011 01:08

AFAIK you need to be GST registered only if your gross earnings are or are expected to be over the threshold which is currently at $60K. If you are not GST registered then you do not charge your customers GST, you simply declare your earnings for normal income tax deductions.

some good info thanks.

i think thats the bit that confuses me. if i dont register for gst because i estimate i wont earn over 60k, and dont charge for it, but in fact i do end up going over the 60k threshold, thats a lot of gst i have not collected and cant retrospectively charge for and will have to fit the bill? (the pre 60k worth of gst that is).

am i able to claim transport expenses to and from work as a sole trader? (ie $80 a week bus ticket)

will definitely be calling IRD but is great to get some opinions before hand, so thanks heaps.

wreck90

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Reply # 476534 1-Jun-2011 08:27

If you earnt just over the 60k threshold, IRD may bill you as if you had been submitting GST inclusive invoices, ie, on 60k you'd need to pay the IRD some $7800 .

But, I see no reason why your client can't retrospectively pay the gst if you happen to exceed the 60k threshold. You'd need to reissue invoices etc, and the client would need to pay you the extra gst (the client shouldn't care, it is 100% deductible for them anyway).

But, it is a bit of mucking around, and you are causing unnecessary admin hassle for the client. You may also be penalised for not paying gst on time.

One thing though, IRD will always look after their own interests. If you exceed 60k they will be merciless in pursuing you for gst regardless of what arrangement you make with your client.

itxtme

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Reply # 476588 1-Jun-2011 10:09

motozed:

AFAIK you need to be GST registered only if your gross earnings are or are expected to be over the threshold which is currently at $60K. If you are not GST registered then you do not charge your customers GST, you simply declare your earnings for normal income tax deductions.

some good info thanks.

i think thats the bit that confuses me. if i dont register for gst because i estimate i wont earn over 60k, and dont charge for it, but in fact i do end up going over the 60k threshold, thats a lot of gst i have not collected and cant retrospectively charge for and will have to fit the bill? (the pre 60k worth of gst that is).

am i able to claim transport expenses to and from work as a sole trader? (ie $80 a week bus ticket)

will definitely be calling IRD but is great to get some opinions before hand, so thanks heaps.

You cannot claim transport costs to and from work, you can however claim transport costs to see clients/meetings/suppliers. Sign up for GST, it means you will not have to pay GST on business related items either. It looks more professional, and you wont have to worry about any 60K thresholds.

motozed

13 posts

Geek

Reply # 476667 1-Jun-2011 13:24

oh i thought as a business transport is an expense hence tax deductible.

any more tips on what might be able to be claimed as an expense?

thanks very much all, will speak to IRD re the gst side soon. im thinking if i just collect for now anyway, and if i dont go over 60k i just give it ird ?

sleemanj

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Reply # 476670 1-Jun-2011 13:30

I strongly advise that you ring the IRD. There are a number of other factors which may alter what you need to do because you are a contractor, short term, and you are potentially dealing with a foreign country. The exact nature of the contract you are doing may also have an effect (eg, is it farming, movie business, entertainer...).

Seriously. Ring the IRD and give them the whole details and get them to tell you what you need to do, that's what they are paid for.

---
James Sleeman
I sell lots of stuff for electronic enthusiasts...

sleemanj

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Reply # 476680 1-Jun-2011 13:41

motozed: i just collect for now anyway, and if i dont go over 60k i just give it ird ?

No. If you collect it, it must be noted on the invoice with your GST # (which you won't have if you are not registered) and the client would be entitled to claim it but because you didn't remit it (which you couldn't because you were not registered), then you just swindled the IRD, who would not be happy (understatement of the year).

Broadly speaking, a business CAN register for GST at any time, but MUST register for GST if the turnover in any consecutive 12 month period (not necessarily a financial year!) will be more than 60k.

So as soon as it looks like you are going to have a (any) consecutive 12 months where the turnover (gross income) is more than 60k, register. If you are on top of your accounts, you will know this quite a way out :)

---
James Sleeman
I sell lots of stuff for electronic enthusiasts...

ScottStevensNZ

245 posts

Master Geek

Reply # 476699 1-Jun-2011 15:15

You collect the GST on the behalf of the IRD so it is not taxable. You will get paid the gross amount (which would be 115) and the on pay the GST when you do your return. If youa re in ANY doubt then book an hour with an accountant who will work out the GST as well as any other tax obligations you will have +ACC levies if relevant.

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motozed

13 posts

Geek

Reply # 476701 1-Jun-2011 15:21

thanks for that. tried the ird, will try again later when less busy.

it is IT contracting i am doing.

acc, do i have to pay this levy?

John2010

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Reply # 476703 1-Jun-2011 15:23

motozed: oh i thought as a business transport is an expense hence tax deductible.

any more tips on what might be able to be claimed as an expense?

thanks very much all, will speak to IRD re the gst side soon. im thinking if i just collect for now anyway, and if i dont go over 60k i just give it ird ?

I have been contracting for twenty something years here and while doing so peformed assignments in a number of countries overseas while based in NZ -

From experiences along the way I would suggest getting an accountant involved and NEVER, EVER!!!! go in to IRD even to do something as simple as picking up a brochure (they can be down loaded or one's accountant will give it to you) nor phone them. And if along the way IRD have a question of you then it is best they ask it of your accountant first who apart from having better tax knowledge will likely be trusted much more than you.

An accountant will help you sort a contract for services that better distances you from any later claim that you are actually an employee.

Without really knowing your circumstances (and I am no tax expert) I would suggest that if you work as a contractor in your home country then you will almost certainly be best to bill from your home country even though you are doing the assignment in NZ. Even if you are not a contractor there but need to be or are determined to be one here you may find it best to become one in your home country and bill from there - while that will mean that you cannot become GST registered in NZ it will likely make things like your local travel cost being deductible more clear cut and even accommodation and your international travel deductible (assuming your client is not paying that directly).

That is the way I have worked when doing assignments in a number of countries - my business is based in NZ and I bill from here. Whatever you do as an employee or as a contractor keep in mind that you will remain a tax resident of your home country, not of NZ so your final tax on your NZ billings will be determined in your home country (and even if you set up a NZ resident company you may still find some other issues remain such as the attribution rule that make that option unattractive).

If you are not a contractor in your home country and intend returning there to be an employee again then I suspect you will be open to being questioned, in one country or the other or both, with your feet placed close to a hot fire to justify yourself as to why you really are not an employee for the 3 months you are here. Again, having an accountant may help. But as it seems you will not be earning millions here I suspect that the advice may be that you may find it easier to just be an employee here if your client (employer?) is flexible on that.

One assumes that you are entitled to work in NZ - becoming a contractor by itself does not give one the right to do billable assignments here. I mention it because it is a common misuderstanding and I have seen a couple of people ejected from other countries because of that misunderstanding.

LATER: Should have mentioned that many accountants will give you a quick free introductory meeting.

dman

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Reply # 477499 3-Jun-2011 16:25

I'd recommend if you can afford it (I'd assume so) then keep in reserve a good 10%+ of your earnings until you're out of the country, makes it that much easier to rustle up the money if you make a mistake and DO need to pay the money than if you spent it all!

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ScottStevensNZ

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Master Geek

Reply # 477507 3-Jun-2011 16:38

motozed: thanks for that. tried the ird, will try again later when less busy.

it is IT contracting i am doing.

acc, do i have to pay this levy?

Sucks don't it? I was contracting for 2 years so things you need to look out for are:
ACC
Provisional Tax
Use of money interest (UOMI)

Also, if you have a student loan, you need to take that into account. I think I was putting away about 43% of my gross income to pay for GST, provisionals, ACC and UOMI.

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