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.

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.

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
  • $70,001 and over the income tax rate is 33 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
  • MORE than $70,001 your secondary tax code will be ST 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 a Personal Tax Summary (PTS)

A personal tax summary (PTS) is for salary and wage earners and shows income and tax deduction details for the year. These details are based on the employment, pensions or benefit information provided to IR each month by employer or payer. You need to also be a New Zealand Tax Resident for the entire tax year. A PTS determines if a client has OVERPAID or UNDERPAID their tax during the financial year.

A PTS can be automatically issued for one of the following reasons:

  • Received WFFTC
  • Used the wrong tax code/ special tax code
  • Received income as an IR56 taxpayer
  • Had a student loan

A PTS can be required if a client has earned more than $200 in Interest and taxed at a rate less than required. If a PTS results in a tax to pay (TTP) of $20 or less, Inland Revenue

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
  • Withholding Tax Payments more than $200
  • 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.

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. 2013/14 tax year ACC earners levy rate was 1.70% with a maximum cap of $116,089. 2015 tax year saw a decrease in ACC earners levy to 1.45% with a maximum cap of $118,191.

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