Tax Facts

What is a Tax Year

An NZ tax year begins April 1st and ends 31st March each year.

Although it is not compulsory for all tax payers to file a tax return every year, it is recommended to do so. IRD collect tax from salary and wage earners throughout the year as PAYE (pay as you earn). Tax payers other than those that have PAYE deducted are required to file a tax return every year. The tax year ends 31st March but finalisation of tax returns won’t occur till at least the middle of June. Tax refunds older than 5 years may not be available.

Who gets an automatically issued income tax assessment

Your assessment will be automatically calculated if IRD have all your income information for the tax year (1 April to 31 March).

If you income is from: employment investments (bank deposits or savings interest) a benefit under an employment share scheme.

This includes income from: salary or wages NZ Superannuation schedular payments income-tested benefits interest or dividends taxable Maori authority distributions benefits under an employee share scheme.

Your assessment shows if you are due a refund or if you have tax to pay. In some situations, IRD will automatically write-off tax owing.

What you need to do – As your tax agent we will send you a copy of the earnings information held by IRD. Once we have received your confirmation we can review if your assessment is true and accurate. You can update your details anytime in myIR (including removal of a tax agent)

Automatic income tax assessments – increase to write-off threshold

A temporary increase to the write-off threshold for qualifying individuals aims to ease financial stress resulting from COVID-19.

This change to the threshold from $50 to $200 for the 2020 income tax year only applies to qualifying individuals – customers who only receive reportable income and an automatically calculated assessment, not customers who are required to file an IR3 tax return.

What is Income Tax

Income tax is money taken out of your earnings. Unless you’re self-employed, your employer takes out the income tax before you get paid. The main types of income tax are:

pay as you earn (PAYE) – money taken out of your salary or wages by your employer
tax on schedular payments (formerly withholding payments) – same as PAYE, but it’s taken out of money you earn as a contractor or casual worker eg pamphlet deliveries.

Your employer lodges the tax deductions directly with Inland Revenue throughout the tax year. If at the end of the income tax year you haven’t paid enough income tax, you’ll have to pay it directly to Inland Revenue by 7 February of the following year. If you have overpaid your income tax, you get a refund (release mid-June)

What are the Income Tax Rates

Income tax rates are applied to your combined income at the end of the tax year to work out your tax obligation.

Income Tax Rates from 01 April 2021

If your taxable income is:

up to $14,000 the income tax rate is 10.5 cents per dollar
from $14,001 to $48,000 the income tax rate is 17.5 cents per dollar
from $48,001 to $70,000 the income tax rate is 30 cents per dollar
from $70,001 to $180,000 the income tax rate is 33 cents per dollar
$180,001 and over the income tax rate is 39 cents per dollar
no-notification the income tax rate us 45 cents per dollar

What is a Tax Code

Your tax code is what decides how much tax is deducted from your income. The tax code that you will need to use depends on how many sources of income you have, and whether you have a student loan.

If you:

have only one job
this job is your main job, and
none of the following situations apply

then your main tax code is M and if you have a student loan your tax code is M SL.

are a New Zealand tax resident, and
have income between $24,000 and $48,000, and
qualify for the Independent Earner Tax Credit

then your main tax code is M E and if you have a student loan your tax code is ME SL.

are on an income tested benefit

then you main tax code is M.

Have a second job?

The tax code for a second job depends on your annual estimated gross income from all sources. If you estimate your annual gross income to be:

LESS than $14,000 your secondary tax code will be SB
Between $14,001 and $48,000 your secondary tax code will be S
Between $48,001 and $70,000 your secondary tax code will be SH
Between $70,001 and $180,000 your secondary tax code will be ST
MORE than $180,001 your secondary tax code will be SA
If you have a student loan you must add SL to each of the applicable tax codes. For example: S SL.

Other codes

WT for schedular payments
CAE for the earnings of casual agricultural employees
EDW for the earnings of election day workers
NSW for Pacific Island workers employed under the Recognised Seasonal Employers scheme
STC for a special tax code. This is a tax rate worked out to suit your individual circumstances. For example:
- you have a second job or other income over and above your main job
- receiving a benefit or ACC and working at the same time, or
- receiving an overseas pension that’s taxable in New Zealand.

Why people get refunds and tax bills

You pay tax on the income you receive during the tax year. At the end of a tax year an annual calculation is made to determine if what you paid during the year is accurate or not!

You could get a refund if you:

were a beneficiary, salary or wage earner
paid donations
Filed a tax return.

You’re most likely to get a refund if you:

worked for part of the year
received a lump sum payment (such as a bonus or redundancy)
had more than one employer during the year
have expenses to claim
Were entitled to the independent earner tax credit but didn’t claim all of it during the tax year.

You could get a tax bill if you:

are using the wrong tax code
received IETC when not entitled
self-employed, rental or untaxed income
incorrect working for families’ detail
low PIR rate

What is ACC earners' levy

All employees must pay an ACC earners’ levy to cover the cost of non-work related injuries.

It is collected by IR on behalf of the Accident Compensation Corporation.

2023 tax year ACC earners levy rate was 1.46% with a maximum cap of $136,544.

2024 tax year ACC earners levy rate was 1.53% with a maximum cap of $139,384.

2025 tax year ACC earners levy rate was 1.60% with a maximum cap of $142,283.

What is an Individual Income Return (IR3)

At the end of each tax year some taxpayers need to confirm the amount of personal income tax to be paid as they receive income in addition to salary and wages. This is done by filing an Individual income tax return (IR3). If a client hasn’t filed, the most recent IR3 by January of the current tax year we need to issue an L letter to the client to encourage them to contact us.

An IR3 determines:

What income was earned during the year
How much tax was paid on the income
Any business expenses claimed
If the client went overseas for more than 6 months throughout the financial year
Can take up to 10 weeks to be processed
IR3’s are required to be filed at Inland Revenue and can results in late filing penalties

There are many reasons why a client maybe required to file and IR3, some of the reasons are:

Been overseas for more than 6 months
Rental Income
Self-Employment Income
Bankruptcy

What is the Working for Families Tax Credits

Working for Families Tax Credits are for families with dependent children 18 or younger, to help with day-to-day living costs. All tax credits are paid to the principal child carer – the person who mainly looks after the child. While this tax credit does not influence income tax required to pay, the WFFTC is required to be squared up in conjunction with the Income tax return/PTS

What types of tax credits are there? Clients might qualify for one or more type of tax credit, depending on their circumstances: family tax credit – the most common payment, paid regardless of your source of income in-work tax credit – paid to families who normally work a minimum number of hours each week minimum family tax credit – paid to families who earn up to a certain amount per year before tax parental tax credit – paid for the first 56 days (eight weeks) after your baby is born or adopted (first 70 days (10 weeks) for babies born on or after 1 April 2015).

How much can you get?

The amount depends on:

how many children you support financially who are 18 or younger
your children’s ages
any shared care arrangements
your family income (how much you and your spouse or partner earn)
the source of your family income eg salary or wages, business, student allowance or benefit
the number of hours you work each week.