Schedule 5 Certain tax codes and rates

ss 3, 24B to 24IB

Schedule 5: inserted, on 1 April 2019, by section 372(1)(c) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).

Part A PAYE tax codes for general use

Schedule 5 Part A: inserted, on 1 April 2019, by section 372(1)(c) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).

1 Tax codes generally

(1)

The basic tax rates for PAYE income payments are set out in schedule 2 of the Income Tax Act 2007.

(2)

The table in clause 4 lists the tax codes from which an employee must choose the code that applies to their circumstances unless they have a tailored tax code under part B, clauses 1 to 3.

(3)

An employee who receives a PAYE income payment of an income-tested benefit and a PAYE income payment that does not consist of an income-tested benefit may choose, for their non-benefit income, a secondary tax code set out in the table in clause 4, rows 3 to 6, that applies to their circumstances.

(4)

If another Act requires an employer to withhold the amount of tax for a PAYE income payment to an employee and pay the amount to the Commissioner, the tax code may be combined with another code applying under that Act.

Schedule 5 Part A clause 1: inserted, on 1 April 2019, by section 372(1)(c) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).

Schedule 5 Part A clause 1(2): amended, on 1 April 2019, by section 109(1) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).

2 Changes to tax codes

(1)

An employee must inform their employer of a change in their tax code, including in the information, their name and tax file number, unless the Commissioner has provided a code to the employer under clause 3.

(2)

If an employee finds it difficult or impractical to inform their employer of a change in their tax code, they may notify the Commissioner who must then notify the employer of the employee’s new tax code.

(3)

The employee’s new tax code under subclause (1) or (2) applies to a PAYE income payment that the employer pays to the employee from—

(a)

the first day of a pay period to which the payment relates until the date on which the employee is no longer entitled to use the tax code if—

(i)

the employer has no earlier tax code for the employee; or

(ii)

the change to the tax code is provided before the date on which the employer calculates their payroll for the period:

(b)

the first day of the pay period following that to which the payment relates if the change to the tax code is provided after the date on which the employer calculates their payroll for the period.

Schedule 5 Part A clause 2: inserted, on 1 April 2019, by section 372(1)(c) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).

3 Use of incorrect tax codes

(1)

If the Commissioner considers that an employer or PAYE intermediary has used an incorrect tax code in relation to a PAYE income payment made to an employee, the Commissioner may—

(a)

notify the employee of the incorrect tax code; and

(b)

notify the employer or PAYE intermediary of the incorrect code; and

(c)

provide the tax code that should apply to the PAYE income payment.

(2)

The employer or PAYE intermediary must use the tax code provided by the Commissioner after being notified. However, the tax code does not apply if the employee notifies their employer that their circumstances have changed and, as a result, a different tax code should apply.

Schedule 5 Part A clause 3: inserted, on 1 April 2019, by section 372(1)(c) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).

4 When entitlement to use tax code ends

(1)

If an employee is no longer entitled to use a particular tax code, they must notify their employer within 4 days after the date on which they become aware that they are no longer entitled to use the code. The employee must give the reason why the tax code no longer applies and the date on which their entitlement to use the tax code ended.

(2)

The tax code does not apply to a PAYE income payment made to the employee after the date on which the entitlement ends, unless the payment is salary or wages for a current pay period.

(3)

For the purposes of subclause (1), if the employee notifies the Commissioner that their entitlement has ended, they must similarly provide the reason and the date described in that subclause to the Commissioner.

(4)

If an employer has not received notice that the employee’s entitlement to use the tax code has ended, the employer is not required to change the amount of tax withheld from a payment made to an employee.

Tax code table

RowTax codeCircumstances for use of tax code
1Mfor primary employment earnings when the employee is not entitled to a tax credit under section LC 13 of the Income Tax Act 2007
2MEfor primary employment earnings when the employee is entitled to a tax credit under section LC 13 of the Income Tax Act 2007
3SBfor secondary employment earnings for an employee whose total PAYE income payments are not more than $14,000
4Sfor secondary employment earnings for an employee whose total PAYE income payments are more than $14,000 but not more than $48,000
5SHfor secondary employment earnings for an employee whose total PAYE income payments are more than $48,000 but not more than $70,000
6STfor secondary employment earnings for an employee whose total PAYE income payments are more than $70,000
7CAEfor salary or wages for employment as a casual agricultural employee
8EDWfor salary or wages for employment as an election day worker
9NSWfor salary or wages for employment as a non-resident seasonal worker

Schedule 5 Part A clause 4: inserted, on 1 April 2019, by section 372(1)(c) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).

Schedule 5 Part A clause 4 table: amended, on 1 April 2019, by section 109(2) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).

Part B Special and particular tax codes

Schedule 5 Part B: inserted, on 1 April 2019, by section 372(1)(c) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).

1 Tailored tax codes

(1)

On application by an employee, the Commissioner may provide a tailored tax code for either—

(a)

their New Zealand superannuation income or veteran’s pension income; or

(b)

their other employment income from 1 or more employers.

(2)

A tailored tax code may—

(a)

set out a tax code for a payment of salary or wages to an employee by 1 or more of their employers for a stated period:

(b)

require that no amount of tax is withheld from, or a particular rate of tax applies to, a proportion of a PAYE income payment of the employee, as if it were the whole payment.

(3)

The Commissioner must calculate, for the PAYE income payments and the period to which the tax code applies, the amount of tax for the payments or the rate of tax applying to them,—

(a)

having regard to the amount of tax for the payments that would be required under sections RD 9 to RD 11 of the Income Tax Act 2007:

(b)

disregarding an entitlement under the family scheme.

(4)

For a tailored tax code under subclause (1)(a), the Commissioner must, as soon as practicable, notify the responsible department of the tailored tax code together with the information described in subclauses (2) and (3). The department must use the tailored tax code for a PAYE income payment made to the employee after the date on which the department is notified, or if that payment has already been calculated, for the next payment.

(5)

A tailored tax code overrides the provisions of this Act and the Income Tax Act 2007 other than the employee’s duties under sections RA 8, RA 10, and RD 4(2) of that Act and subclause (6) and part A, clauses 3 and 4.

(6)

The Commissioner may cancel a tailored tax code at any time, notifying the employee, the employer, or responsible department, as applicable. If the employee is notified, they must then notify their employer that their entitlement to use a tailored tax code has ended.

Schedule 5 Part B clause 1: inserted, on 1 April 2019, by section 372(1)(c) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).

Schedule 5 Part B clause 1 heading: replaced, on 1 April 2019, by section 109(3)(a) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).

Schedule 5 Part B clause 1(1): amended, on 1 April 2019, by section 109(3)(b) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).

Schedule 5 Part B clause 1(2): amended, on 1 April 2019, by section 109(3)(b) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).

Schedule 5 Part B clause 1(4): amended, on 1 April 2019, by section 109(3)(b) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).

Schedule 5 Part B clause 1(5): amended, on 1 April 2019, by section 109(3)(b) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).

Schedule 5 Part B clause 1(6): amended, on 1 April 2019, by section 109(3)(b) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).

Schedule 5 Part B clause 1(6): amended, on 1 April 2019, by section 109(4)(a) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).

Schedule 5 Part B clause 1(6): amended, on 1 April 2019, by section 109(4)(b) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).

2 Tax codes for private domestic workers

An employee may notify the Commissioner that they wish to have a tax code for their employment as a private domestic worker.

Schedule 5 Part B clause 2: inserted, on 1 April 2019, by section 372(1)(c) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).

3 Tax codes for non-resident seasonal workers

A non-resident seasonal worker under the recognised seasonal employer (RSE) instructions has a tax code set out in the table in part A, row 9, for the first month of a period of employment in New Zealand.

Schedule 5 Part B clause 3: inserted, on 1 April 2019, by section 372(1)(c) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).

Part C Rates of tax for schedular payments

Schedule 5 Part C: inserted, on 1 April 2019, by section 372(1)(c) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).

1 Rates of tax for schedular payments

(1)

Clauses 2 to 7 apply to determine the rate of tax to be applied to a schedular payment to which sections RD 8 and RD 10B of the Income Tax Act 2007 apply. See also sections 24F, 24G, and 24H.

(2)

The rates of tax applying to schedular payments are—

(a)

the standard rate:

(b)

a payee’s elected rate:

(c)

a rate set by the Commissioner, applying in certain circumstances:

(d)

a special rate provided by the Commissioner.

(3)

In this schedule,—

(a)

a person who is making a schedular payment is referred to as the payer:

(b)

a person who is entitled to receive a schedular payment is referred to as the payee.

Schedule 5 Part C clause 1: inserted, on 1 April 2019, by section 372(1)(c) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).

2 Standard rates of tax

The standard rates of tax for schedular payments are set out in schedule 4 of the Income Tax Act 2007.

Schedule 5 Part C clause 2: inserted, on 1 April 2019, by section 372(1)(c) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).

3 Elected rates of tax

(1)

A payee, other than a non-resident entertainer, may choose a rate of tax that is to apply to a schedular payment for the purposes of section RD 10B(2)(a) of the Income Tax Act 2007. The minimum rates that a payee may choose are—

(a)

for a payee who is a non-resident or a holder of a temporary entry class visa as defined in section 4 of the Immigration Act 2009, 15%:

(b)

for all other payees, 10%.

(2)

If a payee notifies a payer of 2 different rates of tax within a 12-month period, the last notified rate is the elected rate that must be applied to the payment. The payee may not change their rate of tax in relation to the same payer within a 12-month period unless both the payer and payee agree.

(3)

For the purposes of this clause, the rate of tax must be a percentage counted to no more than 1 decimal place.

Schedule 5 Part C clause 3: inserted, on 1 April 2019, by section 372(1)(c) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).

4 Rates of tax or percentages set by Commissioner

(1)

If a payee has a liability under the Inland Revenue Acts that has not been met, the Commissioner may set a rate of tax to be applied to the payee’s schedular payments by notifying the payer and, subject to subclause (7), the payee.

(2)

The payee may ask the Commissioner to cancel the rate referred to in subclause (1), and the Commissioner must cancel the rate and notify the payee of the cancellation, if—

(a)

the Commissioner is satisfied that all the payee’s liabilities under the Inland Revenue Acts have been met; and

(b)

the Commissioner is reasonably satisfied that all the payee’s liabilities under the Inland Revenue Acts will be met in the future.

(3)

In addition to setting a rate under subclause (1), the Commissioner may set a percentage of the amount of 1 or more schedular payments made by a payer to a payee, and the payer must—

(a)

apply the percentage to the schedular payment; and

(b)

subtract the amount that is the percentage from the schedular payment; and

(c)

pay the amount to the Commissioner.

(4)

An amount paid to the Commissioner under subclause (3) is credited against the payee’s liabilities under the Inland Revenue Acts and is not a tax credit under Part L of the Income Tax Act 2007.

(5)

The payee may ask the Commissioner to cancel the percentage set under subclause (3). The Commissioner must cancel the percentage and notify the payee of the cancellation if the Commissioner is satisfied that the payee has paid all tax that is due and payable by them.

(6)

For a payee and a schedular payment, a rate of tax or percentage set under this section must not result in an amount that is more than 50% of the amount of the schedular payment.

(7)

For the purposes of subclauses (1) and (3), the requirement to notify the payee does not have to be met if, after making reasonable inquiries, the Commissioner can find no contact address as described in section 14G for the payee.

Schedule 5 Part C clause 4: inserted, on 1 April 2019, by section 372(1)(c) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).

5 Special rates of tax

(1)

A payee, other than a non-resident entertainer, may apply to the Commissioner for a special rate of tax applying to some or all of a schedular payment, see section 24G.

(2)

The Commissioner may cancel the payee’s entitlement to use a special rate at any time. The Commissioner must notify the payee of the cancellation.

Schedule 5 Part C clause 5: inserted, on 1 April 2019, by section 372(1)(c) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).

6 Exempt schedular payments

(1)

The Commissioner may notify a payee, in relation to 1 or more schedular payments, that they are entitled to receive payment for which no amount of tax is to be withheld, see section 24H.

(2)

Subclause (1) does not apply in relation to—

(a)

a payment made to a non-resident entertainer:

(b)

a payment referred to in schedule 4, part J of the Income Tax Act 2007 made to a payee who is a New Zealand resident.

(3)

The Commissioner may revoke the exemption at any time. The Commissioner must notify the payee of the revocation.

Schedule 5 Part C clause 6: inserted, on 1 April 2019, by section 372(1)(c) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).

7 Use of incorrect rates of tax

(1)

If the Commissioner considers that a payer has used an incorrect rate of tax for a schedular payment made to a payee, the Commissioner may—

(a)

notify the payee of the incorrect rate; and

(b)

notify the payer of the incorrect rate; and

(c)

provide the rate that should apply to the schedular payment.

(2)

After being notified, the payer must use the rate provided by the Commissioner. However, the rate does not apply if the payee notifies the payer that their circumstances have changed and, as a result, a different rate should apply.

Schedule 5 Part C clause 7: inserted, on 1 April 2019, by section 372(1)(c) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).