While most taxpayers are meeting their obligations, IRD is concerned with workers being paid under the table, cash transactions not being reported correctly and poor record keeping.
Current rules to be aware of:
Contractors are now required to provide a completed tax rate notification form for the rate of tax to be deducted from payments they received.
Tax is required to be withheld at the industry standard rate of 15%. However, effective 1 April 2017 a contractor can elect their own rate (10% is the minimum electable rate).
A rate of less than 10% is possible but the contractor must hold a current Special Tax Code/Deduction Rate Certificate (STC), or a Certificate of Exemption (COE) which allow a 0% rate.
STCs and COEs are issued for set periods, each expiring on 31 March in a tax year. STCs are for a maximum of one year and a COE will generally apply for a maximum of two years.
If a contractor does not hold a COE, orchard owners must register as an employer.
If a contractor has a STC, deduct scheduler tax at the rate as per certificate; however, on the monthly schedule show the tax code as withholding tax not special tax code.
If a contractor provides you with a COE, make sure its valid. Key things to check for are:
The person named on the COE is the contractor working for you and the IRD number is the same as on their IR330C.
The COE is for the current year.
The COE shows the rate at which tax is to be deducted and the period it applies for.
Tax is required to be deducted from payments to contractors who principally provide labour to growers at the correct rate. Failure to deduct, or deducting the wrong tax rate, will mean that growers are not meeting their tax obligations which potentially opens them up to IRD penalties.
The IRD is keeping a particularly watchful eye on contractors that may hold STCs and COEs and who have fallen behind on payment of their taxes.
The IRD is astutely aware of the practice where contractors, commonly in periods around the end of the tax year, stop paying their GST and PAYE. Contractors will often do so in anticipation of receiving tax refunds when they file their income tax returns that they then apply against their missed tax obligations.
IRD is also conscious of contractors who enter into instalment arrangements with IRD at the same time each year in anticipation of the upcoming income tax refund. The IRD suspects this is a deliberate practice, as these contractors are generally compliant during the rest of the year.
If a tax payer has unpaid tax or has entered into an arrangement, their entitlement to a COE/STC may be affected.
The IRD has given notice that from 15 December 2017 it will commence action to cancel COEs/STCs held by contractors that have overdue returns, or tax in arrears (including outstanding tax covered by an instalment arrangement).
Further, deliberately not paying taxes is an offence and the IRD could seek to apply penalties on top of revoking the certificates.
With the IRD's heightened focus on the industry, it is particularly important to ensure you are meeting your tax obligations.
Please contact Grant Neagle (firstname.lastname@example.org or by phone 07 9271225) if you have any queries.