The New Zealand Tax System
While working in New Zealand you will have to pay taxes. Luckily for you, New Zealand has a very easy Pay As You Earn (PAYE) system, which means that this tax is usually paid by the employer before the employee receives their pay. In short, what you get in your bank account you keep!
It is worth noting that this tax also includes the Accident Compensation Corporation (ACC) levy that covers you for any work injuries in New Zealand. It is kind of our universal cover. A tax which is not included in your PAYE is Kiwi Saver that is the retirement plan in New Zealand.
Not the right article? Check out How to file a backpacker tax refund? or Good and Service Tax (GST) in New Zealand articles. You might also like to check out the 20 Essential Must-Dos BEFORE Moving to New Zealand.
Income Tax in New Zealand
In this article, we will cover all the basics of your tax work in New Zealand so you have a good idea of how it works. We will cover the following questions:
- How to pay your taxes in New Zealand?
- What is your tax code?
- How much will you be taxed?
- What is KiwiSaver and what to do about it?
- How to check if you have been taxed fairly?
How to Pay Your Taxes in New Zealand?
In order for you to pay your taxes when working in New Zealand, you will need to apply for an Inland Revenue Department number (IRD number). You could work in New Zealand without an IRD number but you will be charged a no-declaration rate which is considerably higher than the normal rate.
To apply for your IRD number, simply complete an online application on the IRD website or fill out the form (IR742) found in New Zealand PostShops, then once completed, hand it back in at the PostShop along with all the requested documents. For more information, check out How to Get an IRD Number for Backpackers.
Once you are IRD registered, simply give your IRD number to your employer and they will deduct your taxes for you and give you the remainder of your wage. Pay As You Earn – easy!
What is Your Tax Code?
Aside from your IRD number, you will need to find out your tax code in New Zealand. The purpose of your tax code is to calculate which tax rate will be applied to your wage.
Every employer will give you the same IRD form to fill up when you start employment with them. You will have to write your IRD number on it and choose your tax code. To find out what is your tax code, just flip the form over and answer a flowchart questionnaire that will give you your tax code. For example, your main job’s tax code will be M.
Keep in mind that your tax code may be different from one job to another so don’t be lazy; go through the flow chart every time.
More info about your tax code on this page.
How Much Will You be Taxed?
The income tax rates in New Zealand are as follows. Note that to give you a more accurate estimate, the tax rates displayed below are including the mandatory ACC Levy (currently around 1.39%):
- Yearly taxable Income: Up to NZ$14,000 / Taxable Income 10.50%.
- Yearly taxable Income: from NZ$14,001 to NZ$48,000 / Taxable Income 17.50%.
- Yearly taxable Income: from NZ$48,001 to NZ$70,000 / Taxable Income 30%.
- Yearly taxable Income: NZ$70,001 and over / Taxable Income 33%.
- No-notification (no IRD number): Taxable Income 45%.
What is KiwiSaver and What to Do About it?
In short, KiwiSaver is the government-run retirement plan in New Zealand. It deducts a chosen percentage of your wage every time you get paid and holds it for you, so you have something to cash in when you retire. This is indeed something that no backpacker needs.
With that in mind, here is what to do about it:
Opt-in KiwiSaver through the form provided by your employer as it is mandatory, then ask your employer for the opt-out form, fill it up and send it to IRD. IRD will then refund you the money saved up already and stop deducting from your wages for this job.
Repeat this operation for each job.
How to Check if You Have Been Taxed Fairly?
The Inland Revenue Department of New Zealand has made things very easy for you, use this online deduction calculator to check out how much taxes you should pay or have paid. PAYE / KiwiSaver deductions Calculator.
Check if You are Subject to Double Taxations
If you are tax resident in your home country as well as in New Zealand, your home country may tax your worldwide incomes, which means that you will have to pay taxes on your income in NZ back in your home country. Make sure to contact your tax agency in your home country to ask if this is your case. Nobody wants to go home to a tax control!
So You Are Working in New Zealand?
Have you got a Working Holiday Visa? That’s the first step to being able to work in New Zealand if you are a backpacker or budget traveller.