“Nothing is certain except death and taxes,” so the saying goes. We’ve come to expect a tax on just about everything we do that it’s pretty much up there with our impending mortality. Well, at least no one’s figured out a way to tax us for simply breathing….yet.
New Zealand is no exception. As you can imagine, maintaining a country of its size and beauty doesn’t come cheap, GDP-sized proceeds from Hollywood production companies notwithstanding.
As a result, even backpackers working odd jobs to pay for their trips across NZ’s evergreen pastures can expect to contribute to the national treasury, whether they like it or not.
The PAYE System
This acronym stands for “Pay As You Earn,” and it describes how NZ employers automatically deduct their employees’ taxes and remit them to the government.
It implies two things: 1.) You get to keep the whole amount in your NZ bank account, and 2.) There’s no way you can get out of paying taxes as a legally-hired worker in New Zealand.
However, take comfort in how your taxes contribute to the levies for the wonderful invention that is the ACC or Accidental Compensation Corporation. Under this policy, everyone in New Zealand from bonafide citizens to tourists are covered by free medical treatment in case of accidents, unlike in some countries, where even working tourists aren’t eligible for public health care.
Lastly, you should also note that “Kiwi Saver” taxes, which pertain to the NZ retirement plan, aren’t included under PAYE.
How Paying Your NZ Taxes is Easy as 1-2-3
In order to pay your taxes properly in New Zealand, you need to apply for an Inland Revenue Department (IRD) number. By the way, it’s possible to work in this country without an IRD number, but then, you would be charged with a higher-than-usual “no-declaration” rate, so best get one, mate.
Anyhow, it’s quite easy pay your taxes properly. Here’s how you can get started:
- Fill up an online application from the IRD website. Alternatively, you can request Form IR 742 from New Zealand PostShops. Once you’ve completed that, you can submit it back to the PostShop along with other documentary requirements like a scan of your valid passport, your tax number from home, and so on.
- Give your resulting IRD number to your employer.
- Your boss will then use your IRD number as a reference when deducting your taxes prior to remitting the remainder of your wage.
Voila! That’s it. Wasn’t that easy?
Tax-Related Keywords to Bear In Mind
Here are a handful of tax-related terms that working travelers or backpackers in NZ ought to be familiar with:
1. Tax resident.
Anyone who stays in New Zealand for 183 days, or about 6 months, within a 12-month period is considered a tax resident.
2. Annual income.
This refers to your pre-tax income from 1 April to 30 March of the following year.
3. Student loan.
If you’ve applied for any loans to fund your higher education degree in New Zealand, these can factor in to your tax computation.
4. Source of income.
As its name implies, this includes anything you earn money from, such as salaries, wages, student allowances, or even weekly accident compensation payments.
5. Tax code.
Your tax code determines the rate at which you’ll be taxed at, so it’s important to get this right.
You’re usually given a flowchart to help you figure out the correct tax code when you apply for your IRD number, but the most common one for working backpackers is “M.” This code is valid if:
a.) your main source of income is the job your form IR 330 is for;
b.) your annual income is somewhere between NZ$24,000-NZ$48,000;
c.) you don’t have a New Zealand student loan to pay off;
d.) you’re not entitled to a Veteran’s Pension, NZ Super, or their overseas equivalents.
There are also other tax codes that can apply to those on a working holiday, depending of the nature of their job, such as:
a.) Election Day Workers (EDW)
b.) Recognized Seasonal Workers – This tax code is for people with valid visa’s or Recognized Employer Work Policy permits employed under the Recognized Seasonal Employers’ Scheme in horticulture or viticulture industries
c.) Casual Agricultural Workers – Shearers, shearing shedhands, and other casual seasonal workers employed on a daily basis for up to three months are classified under the CAE tax code.
d.) Schedular Payments – If you are an independent contractor rather than an employee, you qualify for the WT tax code. The types of contractor work can be found on page four of the IRR 330 form.
e.) Special Tax Code – In case your work arrangements entitle you to a special tax, you can tick off the STC tax code on your application form, provided that you attach a special tax certificate to it upon submission.
Oh, and just in case you’re wondering if you can escape paying taxes by simply being a tourist in NZ, well, sorry to burst your bubble. They do have a goods and services tax (GST) on just about everything you purchase within the country.
Except for rent, bank services, and duty-free items, you can expect a GST rate of about 15% applied to all other NZ products and services. Sometimes, it’s already incorporated in the tag price, but there may be instances where merchants will simply add it on at the register.
While some countries like South Korea and the United Kingdom offer refunds on GST taxes for non-citizens going back to their home countries, New Zealand doesn’t, so you can’t expect to get this back at the end of your trip.
Death and taxes, eh?