New Zealand - Taxation

All employees who receive salary or wage are

subject to Pay As Your Earn tax (PAYE). Rather than wait to the end of the financial year for the employee to submit their taxation return, the Internal Revenue Department (IRD) collects tax directly from the employer when salaries or wages are paid.

Tax scales and rates are held in tables and the value of PAYE tax payable is determined by allocation of a tax code to each employee.

On commencement of employment, all new employees complete an Employee Declaration (IR330) which must be handed to their employer. The declaration contains the employee tax code details. A new declaration is required if the employee's tax details change. If an employee does not complete a declaration including an IRD number, PAYE deductions must be taken at the No Declaration Rate, (Tax Code N).

A Certificate of Earnings may be produced for an employee if required. This process is run using Advanced Reporting.

Extra pay payments are payments such as back pay, bonuses and some special allowances. These amounts are not included in the value that is taxed as per the normal earnings which is nominated by the employee tax code.

The rate is determined by the annual earnings of the employee, although the employee may elect to be taxed at a higher rate.

Extra Pay payments are included in the employee's normal yearly gross earnings. Although there are no specific reporting requirements, a separate value must be kept and maintained at an employee level as some calculations are made on gross less the extra pay amount. If the employee is in a different tax bracket to the extra pay rate, the difference is resolved when the employee's tax assessment is done.

If the employee has not nominated the higher rate of tax for the payment of an extra pay amount, the following calculation will take place:

The employee's last 4 weeks (28 days) gross pay values (excluding any extra pay, retirement and redundancy payments for the current pay) are accumulated and annualized (multiplied by 13).

Extra Pay Tax calculations are performed on Allowance codes with a Classification of X and G.

These are payments made on termination of employment.

These amounts are not included in the value that is taxed as per the normal earnings which is nominated by the employee tax code. The tax rate for Redundancy and Retirement payments is determined by the annual earnings of the employee, although the employee may elect to be taxed at a higher rate.

Redundancy and Retirement payments do not attract Earner Premium.

These values are included in the gross pay figure and must be kept as a separate value for reporting purposes.

• Student Loans are are included when calculating redundancy and retirement payments for employees with a tax code of M SL, ML SL, ME SL, S SL, SB SL, SH SL, ST SL or SA SL.

The ACC Earners Levy is paid by the employee to cover them in case they injure themselves at home, playing sports, or out and about.

Neither all employees, nor all earnings are liable for this tax. Some employees may be taxed at different rates depending on a maximum earnings threshold.

The Earner Levy doesn't need to be stored as a separate figure but is added into the employee's YTD tax amount.

An IR23 authority allows the employee to pay a lower rate of tax than normal. Employees can apply for an IR23 authority if they believe they will be due for a large refund at the end of the financial year. The IRD will review the employee's taxation rate and can issue a lower flat tax rate using an IR23 authority.

The special tax code means that the IRD will issue the employee with a flat tax percentage to be used for all tax calculations.

An Employer Superannuation Contribution is any contribution to Kiwisaver, Complying or Superannuation fund paid by the employer for the employees' benefit.

This contribution is liable for tax.

The rate of ESCT to be deducted is calculated at the start of each year that contributions will be made, based on the earnings of the employee in the previous year.

This is the Non-Resident Seasonal Workers tax code when used.

An employer may receive a notice from IRD requiring them to deduct tax or family tax credit over payments from an employee's wage (a section 157 notice).

This deduction requires a comparison each pay in order to determine the lesser of:

• 10% of the original total arrears $ value supplied or
• 20% of gross.

The Allowance/Deduction Codes have been modified to cater for this via the NZ-IRD Choice List on the Allow/Deduct Codes reference table.

L - Inland Revenue Arrears Payment

Configuration of the Deduction Code

To take advantage of this feature you will need to either change the configuration of your current IRD arrears codes, or configure a new one and move employees to the new one. If you are changing your existing codes you will also need to review the records for employees with these codes attached to ensure the employee records are set up correctly. Details on employee records set up are provided below.

Allow/Deduct Codes are accessed via the Payroll>>Reference>>Allow/Deduct Rules, option from the Navigator then select the Allow/Deduct Codes tab.

The Allow/Deduct code(s) will need:

• a Classification of P, to cater for the percentage of the gross pay
• The Allowance Rate set to 20.0000, and
• The NZ-IRD field will need to be set to L - Inland Revenue Arrears Payment.

Employee Record

When a Section 157 notice for the employee is required to be actioned, add the Allow/Deduct Code to the employee with a Standard Unit set to 1.00. The value of the arrears payment will need to be added to the Contract Amount so the deduction will cease when the value has been reached. The Outstanding Amount value will be added by Preceda when the record is saved.

Child Support is collected by the IRD. They forward all monies collected to the Child Support Agency.

These deductions have a protected earnings applied to the calculation. This amount is currently set to 60% of the employee's net. This figure can be altered in the future and an employee may authorize a lower protected net percentage so as to a pay a higher amount in Child Support.

The amounts deducted must be recorded separately to the employee's PAYE tax amount as the amount must be reported separately on the employer monthly schedule Payday Filing Employment Information (EI).

A field, Protected Net for Child Support, is included in the Salary window. The user must update this field, where applicable with the protected net percentage for this employee.

The employee must have an Allowance/Deduction record attached to the masterfile with the NZ-IR field flagged with C for child support. The amount field should contain the value which is required as a deduction.

The employee's net salary is calculated using the following steps:

Step 1 - Net Figure is Derived

For employees that have a Child Support deduction (Allowance/Deduction record classification code E with NZ-IRD field containing a C), a net figure is derived (Gross - Calculated Tax).

Gross amount will include all allowances, taxable and non taxable, but no deductions. Child Support Deductions take priority over all other deductions. These will be deducted after the child support calculation.

Example Gross Wages $168.00 PAYE Deduction $ 27.21 Net Figure $140.79

 

Step 2 - Protected Net is Derived

The protected net figure is calculated by multiplying result from the NET FIGURE by the percentage stored in the field Protected Net for Child Support on the employee's Salary window. The default is currently set at 60%.

Example Net Figure $140.79 Protected Net Child Support % 60%   Protected Net Figure $ 84.47

 

Step 3 - Net Figure After Deduction is Derived

This calculation will take the Net Figure and deduct the child support amount (this will be found in the employee's Allowance/Deduction for classification E with NZ_IRD field containing a C). The reason for this calculation is to help determine if the employee's wage is still within 60% of Net.

Example Net Figure $140.79 Allowance/Deduction with NZ IRD=C $ 70.00 Net Figure after Deduction $ 70.79

 

Step 4 - Calculation Check

This step will then perform a calculation check to determine if the Net Figure After Deduction is less than or greater than the Protected Net Figure.

Example Net Figure after deduction $70.79 Protected Net Figure $84.47

Less Than Result - If the Net Figure after child support deduction in Step 3 is less than the protected Net figure in Step 2, the system should then move onto the next step in this new calculation process in Step 5.

Greater Than Result - If the Net figure after child support deduction in Step 3 is greater than the protected Net figure in Step 2, the system should then make the deduction and move on in the normal calculate pay function and apply any further deductions, etc.

Step 5 - Child Support Deduction

The system then determines the amount of child support to be deducted by reducing the amount to keep employee within 60% of Net pay. This amount will override the amount held on the employee's Allowance/Deduction record for (classification code E with NZ-IRD populated with a C).

To calculate, the system would take the employee's Net Figure in Step 1 and subtract the Protected Net Figure in Step 2.

Example Net Figure $140.79 Protected Net Figure $ 84.47 Child Support Deductions $ 56.32

The Child Support amount is then deducted from the employee's net wage and the system then continues with the normal Calculate pay function and applies all other deductions.

Example In this example the employee's final wage would be: Gross Wages $168.00 PAYE deduction $ 27.21 Net Figure $140.79 Child Support Deduction $ 56.32 Total $ 84.47 Less other deductions $15.00 Take Home Pay $69.47

A report PAY42CSP is produced as part of the Calculate Pay process to show amounts of Child Support which have been changed from the required deduction during the calculation process.

All Child Support amounts that are deducted from employee's salary/wages are included on the Payday Filing Employment Information (EI) file and report.

All Child Support deductions that have changed from the required amount during the Calculate pay processes are flagged in the Payday Filing EI file. The field flagged is called the Child Support Code and is used to inform the IRD that the deduction has been reduced based on protected earnings. In this scenario the field is flagged with a code of P.

If the employee has a student loan resulting from study at a tertiary institution and expects to earn more than the repayment threshold, then they must indicate this to their employer who is then responsible for deducting the correct amount.

Although the amount accumulates into the YTD tax figure the amount deducted must be recorded independently to the employee's PAYE tax amount as it must be reported separately on the employer monthly schedule (Payday Filing Employment Information EI). Student loan deductions are set at 10 cents in the dollar for every dollar earned over the repayment threshold. This deduction rate also applies to redundancy and lump sum repayments.

The New Zealand student loan calculations are done as part of Preceda's Supplementary Tax facility.

1. The employee's Tax record should be flagged with S Student Loan in the Supplementary Tax field.
2. A student loan allowance/deduction code should be added with the following parameters:
   • Classification code of E for Extra Tax
   • NZ-IRD field must contain S for Student Loan
   • Allowance Rate set to zero.
3. The employee should have this Allowance/Deduction code attached to their record with a zero value in the Allowance Rate. If an Allow/Deduct code does not exist, one will be created automatically by the system.
4. The calculate pay process will refer to the relevant tax tables for Student Loan.
5. The student loan amount calculated will then be deducted from employee's wage/salary and an allowance/deduction will be written to the employee's history file.

The amounts deducted will also be written to the employers monthly schedule Payday Filing Employment Information (EI) file and report.

There is one exception; if the employee has a special tax code indicating that the % deducted is to vary from the standard amount then the specificed % is to be entered in the Student Loan % override field.

If the employee has a special tax code indicating that the % for Student Loan is to be set to 0.00 but the employee needs to remain on an SL tax code then enter a value of 99.99 into the Student Loan Override % field.

Additional Student Loan Payment

Where the decision has been made by IRD to recover a significant under deduction, this will be achieved from additional student loan deductions via the use of a SLCIR Repayment code.

To cater for the SLCIR repayment, an Allow/Deduct Code is used with a classification of "E" (extra tax) and the NZ-IRD field set to "G" - Student Loan - Commissioner Deduction.

The Allow/Deduct Code will need to be added to the employee with a unit of 1.0000 and the rate as the percentage the IRD requires.

To enable borrowers to make additional deductions to repay their loan quicker, a repayment code of SLBOR is used.

To cater for the SLBOR repayment, an Allow/Deduct Code is used with a classification of "4" (dollar value) or "P" (percentage value) and the NZ-IRD field set to "H" - Student Loan - Borrower Deduction.

The Allow/Deduct Code will need to be added to the employee with a unit of 1.0000 and the rate as the dollar or percentage value the employee requires.

 

When an employee is terminated there is a requirement in New Zealand to calculate and pay the pro rata portion of their annual leave on the following basis:

If the employee has been with the company for less than 12 months they get paid 8% of their Gross Earnings Since Anniversary as a termination payment (they don't get paid out their leave balance).

If an employee has been with the company for more than 12 months, they get:

• paid their annual leave entitlement (not pro rata) at the higher of average or ordinary rate; plus
• add the payment above to their earnings since their entitlement date multiplied by 8%.
• Read more about GESA

There is a requirement to provide for the employer to pay an employee an amount of money which is not superannuation and is not to be taxed such as a medical benefit. This amount can be either a dollar value or a percentage.

1. Setup the Allowance/Deduction code to be used as a payment for this amount (e.g. a medical benefit).
   The Classification field must be one of:
   • N - Employer Super Contributions based on a fixed $ value.
   • Q - Employer Super Contributions as a % of the Annual Super Gross
   • S - Employer Super Contributions as a % of Linked Earnings or Gross

   A value may be entered into the Allowance Rate field, if required.

   If the Classification is N, this will be regarded as a dollar value which can be overridden at Time Entry, if required.

   If the Classification is Q or S, this will be regarded as a percentage. If overriding this during Time Entry, calculate and enter the dollar value, not a percentage.

2. NZ-IRD field must contain N for Non-Tax Non-Contributory.
   This value may be selected only if the Classification is N, Q or S.

   If selected, when the payroll is run the Allowance/Deduction code, value will not be taxed.

    

The following New Zealand tax codes are represented in Preceda using the following codes: