Managing tax matters can be complicated and will be quite specific to different types of organisations. This section provides some basic tips on managing your tax responsibilities, but we strongly advise you to talk to an accountant or refer to the detailed information for non-profit organisations, available from Inland Revenue's website: https://www.ird.govt.nz/.
Checklist of tax responsibilities
Here are some of the basic tax responsibilities most organisations or groups will have:
- Your organisation will need to get an Inland Revenue (IRD) number if you don't already have one.
- Unless your organisation is exempt from income tax, you will need to:
- complete an income tax return (the actual type varies depending on your legal structure)
- pay income tax on your net income
- pay resident withholding tax (RWT) on interest and dividends received
- complete fringe benefit tax (FBT) returns and pay fringe benefit tax (if applicable)
- possibly pay provisional tax during the year.
- Register for Goods and Services Tax (GST) if your organisation's income is over $60,000. If you are GST-registered, you need to complete GST returns and pay GST to Inland Revenue.
- If you're an employer, you will have to deduct PAYE, and may need to deduct student loan repayments, child support payments and KiwiSaver, and pay all of these to Inland Revenue.
Tip: The New Zealand tax system relies on people meeting their tax responsibilities voluntarily but there are penalties if you don't comply. Check out Inland Revenue for more information.
Getting an Inland Revenue (IRD) number
Your IRD number is used for all your organisation's tax and business. You'll need an IRD number to register as an employer. You can find information about getting an IRD number here - https://www.ird.govt.nz/how-to/irdnumbers/organisations/ and start the application process online.
Tip: Contact Inland Revenue on freephone 0800 377 774 if you need further help. Once you've been issued with an IRD number, you use it in all your dealings with Inland Revenue.
Income tax obligations
The following community organisations are liable for income tax on their taxable income:
- those operating without written rules or a constitution
- those operating under a set of rules or a constitution that does not meet the requirements for a specific exemption
- those non-profit bodies entitled to the $1000 deduction but whose income is more than $1000 (read more about this here - https://www.ird.govt.nz/non-profit/np-gst/exemption/).
Tip: The correct tax return form to use depends on your type of organisation. Refer to Inland Revenue - https://www.ird.govt.nz/forms-guides/keyword/notforprofitgroups/forms-guides-subject-not-for-profits-grps.html - for the correct forms for your organisation. Note: most community groups that need to complete an income tax return will use an IR9 return (for clubs and societies).
Exemptions from income tax
There are a number of income tax exemptions that an organisation may be entitled to. To qualify, the organisation must meet the specific requirements of the particular exemption it is claiming.
The following organisations are allowed tax exemptions under income tax law:
- non-profit organisations (with taxable less than $1,000 in most recent income year)
- amateur game or sports promoters and racing clubs
- improvement or research promoters:
- district improvement organisations
- science or industrial research
- veterinary services or
- cattle herd improvement
- friendly societies or credit unions
- community trusts
- licensed non-casino gaming machine operators.
Unless a group gains an exemption from Inland Revenue, it may be liable for income tax on its earnings (i.e. the profit it makes). As mentioned previously, deduction of up to $1000 per year from an organisation's net income is available for some non-profit groups, which reduces the amount of tax they need to pay.
Tip: For more information on the various tax exemptions available to different types of organisations refer to IR255 - Charitable organisations: a tax guide for charities, donee organisations and other groups, available from Inland Revenue's website (www.ird.govt.nz) or by calling them on 0800 377 774.
Resident withholding tax (RWT)
Money held in the bank or a financial institution is taxed on the interest it earns before payment. An organisation that is exempt from income tax is generally eligible for a certificate of exemption from RWT.
You need to complete an Application for exemption from resident withholding tax on interest and dividends (IR451) form and send it to Inland Revenue in order to obtain a certificate of exemption.
Tip: You can take a copy of your exemption certificate to the bank to make sure that they don't deduct tax. If RWT has been incorrectly deducted, then you can apply for a refund on an IR454 Resident Withholding Tax (Refund Request) form.
Employment-related tax obligations
Registering as an employer
As soon as you start employing people, you must register with Inland Revenue. If you know in advance that someone will start working for you, you can register before they actually begin work.
Tip: To register as an employer, fill in the Employer registration (IR334) form and send it to one of the addresses listed on that form. If you prefer, you can register online at: https://www.ird.govt.nz .
As an employer, you must make deductions from payments you make to people who work for you, and pay these deductions to Inland Revenue. The types of deductions you may need to make are:
- PAYE (Pay As You Earn)
- student loan and child support
- FBT (Fringe Benefit Tax)
- Payroll giving.
Tip: You can get a more detailed overview of employers responsibilities here: https://www.ird.govt.nz/payroll-employers/become-employer/overview/
The following sections cover the various types of deductions from salaries and wages. More information can be found here: https://www.ird.govt.nz/payroll-employers/make-deductions/deductions/
PAYE (pay as you earn) is the basic tax you take out of your employees wages whenever you pay them. PAYE includes the Accident Compensation Corporation (ACC) earners levy.
Your employees must complete a tax code declaration (IR330) form as soon as they start work for you. This form explains how to work out the correct tax code. The amount of PAYE you deduct depends on this tax code. Inland Revenue can provide you with a copy of the tax tables so you can work out the amount of PAYE to deduct for each tax code.
Here are the tables for 1 April 2018 until 31 March 2019:
- weekly and fortnightly PAYE deduction tables I340 - https://www.ird.govt.nz/forms-guides/number/forms-300-399/ir340-guide-paye-2019-weekly.html
- four-weekly and monthly PAYE deduction tables I341 - https://www.ird.govt.nz/forms-guides/number/forms-300-399/ir341-guide-paye-2019-fourweekly.html
If the net pay is to be the same every pay period, you can obtain an automatic payment authority from your organisation's bank and make a direct credit into the employee's account.
Monthly PAYE reconciliation
Each month, Inland Revenue requires you to fill out an employer monthly schedule (IR348), which they will automatically forward to you, together with the pay-in slip (IR345), when you register as an employer.
On the schedule, you need to enter PAYE deductions, student loan, child support, KiwiSaver and ESCT (employer superannuation cash contribution) deductions for all your employees.
Alternatively, employers can file their employer monthly schedule (IR348) electronically, which is a fast and efficient way of doing things. For more information, see: https://www.ird.govt.nz/payroll-employers/returns-payments/ir-file-option/
There are penalties if an employer meets a certain criteria and does not file electronically. The criteria is dependent on how much PAYE and ESCT (employer superannuation contribution tax) your organisation deducted the previous year e.g. if it was $100,000 or more. Read more here - https://www.ird.govt.nz/how-to/debt/penalties/electronic-filing/
Your monthly employer information, along with an electronic payment or a cheque covering the monthly PAYE deductions, must reach Inland Revenue before the 20th of each month.
If your PAYE deductions are more than $500,000 a year, you are considered to be a large employer and must pay your PAYE deductions twice a month. You must also file your IR348 electronically. If this applies to you, contact Inland Revenue for more information or see more information here: https://www.ird.govt.nz/payroll-employers/returns-payments/large-emp/
Tip: Remember you incur fees for late filing of PAYE returns. Even if you have a nil monthly schedule, you still need to file it on time (i.e. by the 20th of the month following wage payment).
Student loan and child support deductions
Some of your employees may need to make repayments to Inland Revenue for a student loan. They will use a student loan tax code on their tax code declaration (IR330) form. The PAYE deduction tables also show the amount of student loan repayment to deduct as well as the amount of PAYE, based on your employees tax code.
Tip: If you are required to make child support deductions for an employee, Inland Revenue Child Support will send you a child support deduction notice telling you how much to deduct. Visit: https://www.ird.govt.nz/childsupport/ for more details.
Fringe benefit tax (FBT)
Fringe benefit tax is payable on any fringe (i.e. non-cash) benefits provided by the employer to the employee e.g. motor vehicles, low-interest loans, etc.
Charitable organisations that are exempt from paying income tax, may also be exempt from paying FBT on any benefits provided to employees while they are carrying out the organisation's charitable activities. For example, if an employee has the use of a car while carrying out charitable work for the organisation, any private benefit arising is not subject to FBT. However, if the organisation provides a car as part of a salary package or for use with its business activities, FBT must be charged on any private benefit.
Some benefits that are liable for FBT are:
- private use of an employer-supplied car
- low-interest loans
- subsidised transport
- goods or services supplied below market cost (there can be an exemption for this - see the guide for more information)
- employer contributions to sickness, accident and death benefit funds.
Tip: You may also be eligible for other exemptions from paying FBT. Refer to the publication IR255 Charitable organisations: a tax guide for charities, donee organisations and other groups which can be obtained from Inland Revenue's website https://www.ird.govt.nz.
KiwiSaver is a voluntary, work-based savings initiative to help individuals save for their retirement. As an employer, you will play an important role in helping your employees save with KiwiSaver. KiwiSaver has been designed to use your existing payroll process, and minimise any extra work for you.
Your main roles in KiwiSaver are to:
- check whether new employees are eligible to join KiwiSaver
- check whether new employees should be automatically enrolled
- give the KiwiSaver employee information pack (KS3) to:
- new employees who qualify for automatic enrolment, and
- existing employees who want to opt in
- automatically enrol all new employees who are eligible
- provide information to IRD about:
- all new employees who are automatically enrolled, and
- eligible employees who have opted in to KiwiSaver
- provide new employees with a written statement if you have an employer-chosen scheme, and also that scheme's investment statement
- deduct KiwiSaver contributions and make compulsory employer contributions at the correct rate and forward them to IRD by the due date along with your PAYE payments
- act on opt-out and contributions holiday requests
- stop or start deductions when IRD advises you to
- contact IRD when you require more KiwiSaver employee information packs (KS3).
Payroll giving is a scheme that gives employees the opportunity to donate to an approved donee organisation direct from their pay and receive an immediate tax credit for payroll donations. If you're an employer and file your IR348 and IR345 electronically using ir-File, you can choose to offer payroll giving to your employees. You'll need to:
- deduct the requested donation amount from the individual employee's salary or wage
- calculate the correct tax credits for payroll donations for each donation made
- record the tax credits for payroll donations for individual employees on your employer monthly schedule (IR348), depending on how you file:
- Employer monthly schedule (IR348) if you use ir-File, or
- Employment information schedule if you're a payday filer.
- pass the donations to the chosen donee organisations within the specified timeframe of the deduction being made from the employee's salary or wage
- advise the donee organisation the donation is a result of payroll giving and
- keep records of all tax credits for payroll donations, donation amounts, donee organisations and payment dates.
Tip: For further information, including the list of of approved donee organisations, visit: https://www.ird.govt.nz/payroll-employers/returns-payments/pay-give-emp/payroll-giving-employers.html .
Goods and services tax (GST)
GST is a tax on consumption of most goods and services in New Zealand. GST is currently charged at 15% of the value of the goods or services provided. It is a separate tax from income tax.
A taxable activity is any activity carried on continuously or regularly by a business, trade, manufacturer, professional person, association or club. It includes any activity that supplies, or intends to supply, goods and services to someone else for a consideration (e.g. money, compensation, reward), but not necessarily for profit.
Taxable activities do not include:
- working for salary or wages
- being a company director
- making exempt supplies (e.g. renting out property as a private dwelling, interest you receive, the sale of donated goods and services by a non-profit body, financial services).
Who must register?
If an organisation's annual income for taxable activities was over $60,000 for the past 12 months or expects to be in the next 12 months, it must register for GST. The organisation must also register if your prices include GST. As soon as either of these apply to your organisation, you must register for GST within 21 days.
If your income is less than $60,000, you can choose to register, although IRD does not encourage this. For some voluntary organisations being registered will be an advantage because you will be able to claim back the GST you have paid on goods and services the organisation has used. However, you should remember that if you decide to cancel your registration, you will have to pay GST on the assessed value of your assets at the time of cancellation.
You can read more here: https://www.ird.govt.nz/gst/gst-registering/register-who/
A non-profit body can apply in writing to IRD to treat each branch and division separately for GST purposes. However, each branch or division must maintain its own accounting system and:
- be in a separate location, or
- carry out different activities
Branches and divisions with a turnover of:
- more than $60,000 for any 12 month period must register
- less than $60,000 for any 12 month period may register voluntarily (if there is a taxable activity).
Registering for GST
You can register for GST by completing a GST Registration (IR360) form online. GST registration can be done online through Inland Revenue's website - https://www.ird.govt.nz/online-services/service-name/services-g/online-gst-registration.html
To complete your registration you will need:
- a myIR Secure Online Services account to use this service. Simply login or register to myIR
- an IRD number to be registered
- BIC (business industry classification) code - if you do not have your code you can get it from the Business Industry Description and Code website - https://www.businessdescription.co.nz/#/home
- bank account number (for refunds)
After you complete the online registration, you'll receive immediate confirmation of your:
- registration number (which is usually the same as your IRD number) and
- date of registration.
Tip: Make sure that your GST periods are in line with your year end balance date e.g. if you have a June balance date, ensure that one of your GST periods ends in June. Read more about GST filing frequency here: https://www.ird.govt.nz/gst/gst-registering/gst-filing-frequency/
When you are registered for GST you will need to:
- keep records detailing your income and expenses
- work out the GST on your income and expenses
- complete and file GST returns
- pay IRD any GST owing.
It is very important that you are aware of what you need to do as a GST-registered organisation, there are hefty penalties if you don't comply with the regulations. In general, all organisations registered for GST must:
- charge and collect GST on behalf of the Government
- file GST returns.
Checklist of GST obligations
Organisations registered for GST should note that:
- Goods and services supplied must have GST added to them and be on a GST tax invoice.
- Assets sold must have GST added.
- To claim back the GST you have paid on goods and services, a GST tax invoice must be obtained for all amounts over $50. However there are some payments that you do not generally pay GST on e.g. wages and PAYE; bank charges and interest; koha and donations (where the donor receives no service or otherwise gets no benefit); money received from the sale of donated goods etc.
- You must give tax invoices to GST-registered persons/organisations within 28 days.
- A GST tax invoice is a legal document and must meet certain requirements (see the sample earlier in this section)
- GST returns must be filed every one, two or six months (known as your taxable period). You can choose the taxable period that best suits your organisation. When making your selection, look at how much time it takes to prepare and also the timing of when you receive GST income and when you pay GST payments.
- You must select which basis you will be using to account for GST. You have the choice of the:
- invoice (or accruals) basis - you claim GST when you receive an invoice and account for GST when you receive an invoice or receive a payment, whichever comes first
- payments (or cash) basis - where you account for GST when you pay or receive money
- hybrid basis - a combination of the invoice and payments methods.
- All GST records and documents must be kept for seven years.
- Every GST-registered organisation is open to being audited by Inland Revenue.
Completing your GST return
If you're GST-registered and have a myIR account, paper returns won't be mailed to you. IRD will send you an email to let you know when your GST return is due.
NOTE: You can't get an extension of time to file a GST return, so it's important to know when your GST returns are due.
You may be able to file your GST return directly to IRD through your accounting software. The benefits of filing through accounting software include:
- your GST return data is already pre-populated from your sales and purchase figures
- you don't need to transfer your figures into your myIR or paper GST return
- you receive a real-time confirmation receipt of submission.
Some useful basic tips on calculating GST are:
- to calculate the GST on a GST-exclusive amount multiply by 15 per cent
- if you have the GST-inclusive amount and want the GST amount multiply by 3 and divide by 23
- if you have the GST amount and want the GST-inclusive amount multiply by 23 and divide by 3
- If you have the GST-inclusive amount and you want the GST-exclusive amount multiply by 3 and divide by 23, then deduct this amount from the GST-inclusive amount
Keep in mind that you must still send your GST return to Inland Revenue even if it's a nil one (i.e. there is no refund owing or tax to pay) otherwise Inland Revenue will produce a default assessment based on previous returns and charge you accordingly.
Tip: To find out details on how to calculate your GST (in order to complete your GST return) and how to pay GST or receive a GST refund, visit: https://www.ird.govt.nz/gst/work-out/working-out-your-gst/
Alternatively you can contact Inland Revenue's business tax information service on free phone 0800 377 774.
Accident Compensation Corporation (ACC)
ACC employers levy
Employers are required to pay ACC to cover work-related accidents on behalf of their employees. The levy is based on the organisation's gross wages paid multiplied by the industry rate. When you file a tax return, Inland Revenue passes on your details to ACC so they can invoice your organisation for levies. If you are an employer and have not received an invoice from the ACC, you will need to contact ACC directly.
Tip: Ensure you check the gross wages used by the ACC in their calculations and remember there is GST charged on all ACC employers levies.
ACC earners levy
In addition to ACC employers levies, all employees must pay an ACC earners levy to cover the cost of non-work-related injuries. Inland Revenue collects this on behalf of the Accident Compensation Corporation.
For employees, this levy has been built into the PAYE tables and is deducted along with their PAYE. This means that no extra calculations are needed for it in each pay period.
Tip: For further information on ACC earners levy, visit: https://www.acc.co.nz/for-business/ or contact ACC on free phone 0800 222 776. You can also contact Inland Revenue's Employer Enquiries on free phone 0800 377 772 or refer to their website https://www.ird.govt.nz.