Employer superannuation contribution tax (ESCT)
Employers’ contributions to an approved superannuation fund are subject to ESCT, formally known as ‘specified superannuation contribution withholding tax’ (and contributions to other funds may be subject to fringe benefits tax (FBT)).
Employer contributions to KiwiSaver (or other qualifying registered superannuation schemes) are subject to ESCT rates equivalent to the employee’s annual salary and wage plus the employer’s annual gross contributions.
KiwiSaver is a voluntary workplace-based superannuation savings scheme. It was introduced from 1 July 2007. The KiwiSaver scheme is voluntary for all employees over the age of 18, both full and part-time. All New Zealand residents over the eligible are able to join KiwiSaver, but membership is not compulsory.
The minimum rate for both member and employer contributions is 3%.
Employers must contribute to KiwiSaver for those of their employees who are KiwiSaver members. Employers must calculate ESCT at a rate equivalent to an employee’s annual salary and wage plus the employer’s annual gross contribution.
Accident compensation levies
A statutory-based scheme of accident insurance is funded in part by premiums payable by employers and employees.
Premiums paid by employers (including the self-employed) fund insurance for work-related accidents. Employers are liable to pay a residual claims levy and an employer levy. Premiums are payable at a rate set for the industrial category on leviable earnings up to these amounts.
Non-work accident insurance is funded by premiums paid by employees and the self-employed. For the 2020/2021 year, the premium is a flat rate of NZD 1.39 per NZD 100 including goods and services tax (GST) on taxable earnings up to a maximum of NZD 130,911.
Fringe benefits tax (FBT)
FBT is payable by employers when a fringe benefit (non-cash benefit) is provided to an employee or an associated person of the employee as a result of their employment relationship with the employer. The value of fringe benefits provided is not included in the gross income of employees.
The FBT quarters end with the last day of June, September, December, and March. Returns are due within 20 days of the end of the relevant quarter. Any employer who has provided a fringe benefit is required to file a return setting out the fringe benefits received or enjoyed by employees in the quarter and a calculation of the amount of FBT payable on those benefits. The due date for filing the fourth (March) quarter return is 31 May.
Employers with pay-as-you-earn (PAYE) and employer superannuation contribution tax deductions not exceeding NZD 1,000,000 per annum for the previous tax year can pay FBT on an annual basis, or if the employer was not an employer in the previous tax year. An income year basis is also available for a company that provides fringe benefits to shareholder-employees.
Employers can pay FBT at either 43% or 49.25% of the taxable value of fringe benefits provided for the first three quarters of the tax year.
If the 43% rate is used in any one of the first three quarters, the employer must use the alternate rate calculation in the fourth quarter.
If the 49.25% rate is used in the first three quarters, the employer may use the alternate rate calculation in the fourth quarter or pay FBT at 49.25%. Under the alternate rate method, the applicable FBT rate depends on the net remuneration (including fringe benefits) paid to the employee. For employees who received an attributed fringe benefit in any quarter during the year, the employer must calculate the employee’s fringe benefit inclusive of cash remuneration. The attribution calculation, which is performed in the fourth quarter, treats the fringe benefit as if it was paid in cash and calculates FBT as the notional increase in income tax that would otherwise have arisen.
The ‘short form’ option applies the flat rate of 49.25% to all attributed benefits and 42.86% (or 49.25% for major shareholders and associates) to all pooled vehicles and non-attributed benefits.
The current rates for attributed benefits are as follows:
|Net remuneration (NZD)||FBT rate (%)|
|12,530 or less||11.73|
|12,531 to 40,580||21.21|
|40,581 to 55,980||42.86|
|more than 55,981||49.25|
Under the full attribution system, where possible, all benefits must be attributed to a particular employee. However, certain low value exemptions apply. The tax threshold for exempting unclassified benefits from FBT is NZD 300 per employee per quarter and NZD 22,500 per employer per annum.
All benefits not attributed to individuals are pooled and subject to FBT at 42.86% (or 49.25% for major shareholders and associates). A benefit is attributable to an individual if the asset or benefit is ‘principally’ assigned, used, or available for use by that employee during the quarter or income year as appropriate.
Examples of the value on which FBT is to be calculated are as follows:
|Fringe benefit||Taxable value of benefit|
|Motor vehicle||Employers can value a vehicle on an
annual basis either using 20% of the cost price or market value (GST inclusive) of the vehicle (depending on whether the vehicle is owned or leased by the employer) or 36% of the vehicle’s tax written down value (GST inclusive). In each case, the FBT value must be reduced proportionately for whole days when the vehicle is not available for private use at any time.
|Employment-related loan||The amount by which the interest payable on the loan is less than the interest that would be payable if calculated using the prescribed rate. The prescribed rate is determined on a quarterly basis. The rate from 1 July 2020 is 4.5%. Employers who are in the business of lending money to the public can elect to calculate FBT on employment-related loans using a market interest rate instead of the prescribed rate.|
|Employer contributions to medical insurance||The whole amount of the contribution is subject to FBT.|
|Employer contributions to employee superannuation funds||Subject to ESCT, not FBT (most New Zealand funds).|
|Employer contributions to superannuation schemes (includes foreign schemes)||The whole amount of the contribution is subject to FBT.|
|A benefit of any other kind received by an employee||The price that an independent third party would pay for the goods or services in the normal course of business.|
FBT also applies to benefits received by an employee from a third party. When there is an arrangement between the employer and the third party, the benefit is deemed to be provided by the employer. Generally, FBT does not apply to discounted goods or services received by an employee from a third party if the price paid by the employee is not less than the price that would be charged to other groups of people.
Benefits that are not subject to FBT include specified superannuation contributions (which are separately taxed), the provision of accommodation by an employer (which is subject to PAYE), and the use of a business tool such as a mobile telephone or laptop (provided the tool is used primarily for business purposes and the cost of the tool does not exceed NZD 5,000). FBT is generally a tax-deductible expense, so the effective FBT cost generally corresponds to the relevant employee’s marginal tax rate.
Goods and services tax (GST)
A form of value-added tax, GST applies to most supplies of goods and services. The narrow category of exempt supplies includes financial services. The rate applied to taxable supplies is 15% or 0%. The 0% rate applies to only a few supplies, including exports. A ‘reverse charge’ mechanism requires the self-assessment of GST on the value of services imported by some GST registered persons. Financial services supplied to other registered businesses can be zero-rated under the GST business-to-business (B2B) regime.
Compulsory zero-rating (GST at 0%) applies to any supply involving land between two GST-registered parties if:
- the purchaser acquires the land with the intention of using it to make taxable supplies, and
- the land is not intended to be used as a principal place of residence for either the purchaser or an associate.
Local authorities levy tax known as 'rates' on land within their territorial boundaries. Rates are levied on properties based on the properties' rateable value.
Residential land withholding tax (RLWT)
RLWT applies to the sale of residential land in New Zealand by an 'offshore RLWT person'. RLWT also applies where the property was acquired on or after 1 October 2015 through to 28 March 2018 inclusive and owned for less than two years before being sold or the property was acquired on or after 29 March 2018 and owned for less than five years before being sold.
An RLWT offshore person includes all non-New Zealand citizens and non-permanent residents. It also includes a New Zealand citizen who is living overseas if they have been overseas for the last three years. A holder of a New Zealand residence class visa may be an offshore person if they are outside New Zealand and have not been in New Zealand within the last 12 or more months continuously. New Zealand trusts and companies may also be 'offshore persons' if there are significant offshore interests in them.
The amount of RLWT to be deducted is the lessor of:
- the greater of :
- the gain on sale x RLWT rate (28% for companies, incorporated clubs, and societies; 33% for individuals, all other non-individuals, and companies acting as trustees of a trust); or
- 10% of the sale ;
- if the seller’s conveyancer is the withholder, then the greater of:
- sale price less any amounts required to cover any mortgage or other security with a New Zealand-registered bank or licensed non-bank deposit taker against the property and less any outstanding local authority rates; or
- zero; and
- if the purchaser’s conveyancer or the purchaser is the withholder, then the greater of:
- sale price less any outstanding local authority rates; or
Administrative property tax rules
Buyers and sellers of property must provide their Inland Revenue number at the time of property transfer. Those who are tax residents in another country will also have to provide their Tax Identification Number (TIN) from their home jurisdiction. There is an exemption for New Zealand residents' main home.
Offshore persons must have a New Zealand bank account in order to get a New Zealand Inland Revenue number. This also applies to New Zealanders who have been out of the country for three or more years.
Luxury and excise taxes
Excise duty is levied, in addition to GST, on alcoholic beverages (e.g. wines, beers, spirits), tobacco products, and certain fuels (e.g. compressed natural gas, gasoline). The excise duties are levied item-by-item at rates that vary considerably.