Tax is withheld by the employer from employee's payments through payroll and paid to the Inland Revenue Department.
Accident compensation levy
Employers and employees contribute to a statutory accident insurance scheme. Employers pay premiums for work-related accidents insurance. Employers have to pay a residual claims levy and an employer levy. The amount of the levy that employers pay is determined according to the industry or risk classification and employees' earnings.
Employer superannuation contribution tax (ESCT)
The contributions employers make to an approved superannuation fund (excluding foreign schemes) are subject to ESCT. This includes employer contributions to KiwiSaver (or other qualifying registered superannuation schemes).
ESCT is generally deducted at the employee's applicable progressive rate based on the total salary or wages and employer superannuation cash contributions paid to the employee in the previous year.
|Amount in NZ$||Rate in %|
|Up to 16,800||10.5%|
|16,801 - 57,600||17.5%|
|57,601 - 84,000||30%|
The KiwiSaver is a workplace-based superannuation savings scheme that operates on a voluntary basis and is available to all employees older than 18. Employers must contribute on behalf of all employees who are members. Employers must calculate ESCT at a rate equivalent to an employee's annual salary and wage plus the employer's gross yearly contribution. The minimum contribution rate for both employee and employer is 3% each of the gross salary.
Fringe benefit tax (FBT)
New Zealand is one of the countries where employers are responsible for the fringe benefits tax. It's paid on the value of all non-cash fringe benefits provided to employees, and the amount is tax-deductible. Employers can decide to pay the tax at flat rates (49.25% on attributed benefits and 42.86% on pool benefits) or calculate it for each employee and pay the tax based on their marginal tax rate.
Under the latter attribution option, the applicable FBT rate will depend on the employee's net salary (including fringe benefits). The calculation takes the fringe benefits' cash value and calculates the FBT as the notional increase in income that would have arisen.
Fringe benefits include:
- Motor vehicles available for private use
- Loans below prescribed interest rates
- Discounted goods and services
- Contributions to medical insurance schemes
- Non-monetary employer contributions to superannuation schemes
These are not taxable to the employee, but the value of a benefit from the provision of shares or options, lodging, or housing by an employer is taxable. Other benefits provided to an employee in a non-monetary form are generally not taxable in the employee's hands.
Allowances paid in cash that are no more than reimbursement of business-related expenses incurred within employment are generally not taxable. Certain relocation costs, overtime meal allowances, and accommodation benefits paid by employers are exempt from income tax and FBT. Business tools such as mobile phone or laptop provided for work that do not exceed NZ$5,000 are not subject to FBT.
The tax threshold for exempting unclassified FBT benefits is NZ$300 per employee per quarter and NZ$22,500 per employer per annum.
Fringe Benefit 2020
|Net remuneration in NZD||FBT rate in %|
|Less than 12,530||11.73%|
|12,531 - 40,580||21.21%|
|40,581 - 55,980||42.86%|
|More than 55,980||49.25%|
New Zealand residents are subject to tax on their worldwide income, which includes salary, wages, bonuses, allowances, and retirement gratuities received in cash. Individuals are considered New Zealand residents in the following circumstances:
- Permanent place of residence: New Zealand is the permanent place of residence regardless of how long the individual has been outside of the country
- Presence of more than 183 days: the individual has spent more than 183 days in New Zealand in a given year.
Non-resident pay tax only on their New Zealand income. They may be exempt from paying New Zealand tax if all the following conditions apply:
- Their visits do not exceed 92 days in the income year
- They are liable for income tax on New Zealand-sourced income in their country of residence
- The individual paying the non-resident is themselves not resident in New Zealand
Foreign income tax exemption
There is a temporary four-year tax exemption from income tax on foreign income, which is extended to new immigrants and Kiwis returning to New Zealand after being away for at least ten years. It applies to people becoming residents in New Zealand after April 1, 2006. They can receive the exemption only once in a lifetime. Income from overseas employment performed while living in New Zealand and business income relating to services performed offshore is excluded.
KiwiSaver is a voluntary workplace-based superannuation savings scheme available to all employees over the age of 18. Employers automatically enrol new employees who must opt-out within prescribed time frames if they wanted to. The minimum contribution rate for both the employee and the employer is 3% of gross salary.
Accident compensation levy (ACC)
This is known as the Accident Compensation Corporation (ACC). Employer premiums fund insurance for work-related accidents while premiums paid by employees fund non-work accident insurance. For 2020, the premium is a flat rate of 1.39% of gross earnings up to NZ$130,911.
Resident Income Tax 2020
|Taxable Income (NZ$)||Tax on Column 1||Income Tax on Excess|
|14,001 - 48,000||7,420||17.5%|
|48,001 - 70,000||14,020||30%|
Best start tax credit
Best Start helps families with child care costs after the paid parental leave ends. All families with new babies are entitled to NZ$60 a week during the child's 1st year. If the household income is less than NZ$79,000, they will continue to receive $60 per week until the child turns three.
Personal tax credits
Individuals with annual income between NZ$24,000 and NZ$48,000, who meet specific requirements are entitled to an 'independent earner' tax credit of NZ$520. For eligible individuals who earn over NZ$44,000, the annual entitlement decreases by 13 cents on each additional dollar earned up to NZ$48,000, at which point they no longer qualify for the credit.
Credit for charitable donations
An individual can claim a 33.3% tax credit for eligible charitable donations, up to their taxable income.
Employers can choose to provide allowances on top of employees' usual pay in the form of extra money for things like accommodation, meals and clothing. These allowances are taxed through PAYE.
Generally, an accommodation or an accommodation allowance is taxable via PAYE, with some tax-free exemptions:
- staying overnight in an accommodation due to attendance of a work-related meeting, conference or training course
- working from a location, they cannot easily travel to daily
Meal and clothing allowances
Allowances to help cover the costs of meals and clothing employees have to buy as part of their job are usually tax-exempt. Some examples include:
- Payments to cover meals for employees who are working away from the employer's premises
- Payments covering the cost of clothing for work, such as uniforms or protective gear
These allowances are specifically for employees travelling from their home to work. This allowance is taxed via PAYE unless the employee is:
- Working outside their regular hours, e.g. overtime, shift or weekend work
- Carrying work-related tools and equipment, e.g. the employee usually takes the bus to work but must use a taxi or their vehicle to transport work-related gear.
- Travelling for business purposes
- Having a temporary change in the workplace
- Does not have access to adequate public transport system to the workplace
Cash benefits made in addition to an employee's salary or wages are taxable, and include things like:
- Food allowances (payments to subsidise meals at a workplace cafe or canteen)
- Clothing allowances (to buy a suit to wear at work, but not a uniform)
Unexpected on-the-job expenses that employees incur, such as paying for meals or travel when they're away from their typical workplace, should be refunded to them by their employer.
Employees are reimbursed either by providing receipts or by the employer, making a reasonable reimbursement estimate. Reimbursements are generally added to the salary of the employee after their PAYE has been deducted. Reimbursed expenses are not taxable. However, if the payment is more than the cost, the excess amount is taxable.
Employers sometimes cover the employee's own and their family relocation costs. The payment may be tax-free if they are relocating to:
- Start employment with the company
- Start a new role at a new location with the company
- Stay in their current position but move to a new location
Relocation expenses will generally only be tax-free if the employee's home is a substantial travelling distance from the new workplace.