Tax treatment of non-resident seasonal workers

2009 Bill ensures the correct amount of tax is deducted from migrant non-resident seasonal workers and removes the requirement for end-of-year tax returns.

Sections RD 12, YA (1), YD (1) and schedule 2, part A of the Income Tax Act 2007; sections 24B(3), 24F(5) and 33A of the Tax Administration Act 1994

The bill contains several remedial amendments to the legislation to ensure the correct amount of tax is deducted from migrant non-resident seasonal workers during the year. It also removes the requirement for these workers to file end-of-year tax returns. The changes will reduce the compliance costs incurred by non-resident seasonal workers, who come to New Zealand to work under the recognised seasonal employer policy, in complying with their tax obligations.

Background

Non-resident seasonal workers come to New Zealand under the Recognised Seasonal Employer Work Scheme for between 7 and 9 months before going home. Under the previous rules, if they were here more than 183 days they were considered to be resident for tax purposes. Also, as they worked for only part of the year, the PAYE tax deduction system over-deducted tax, requiring migrant workers to file an end-of-year return to receive their refund. The new rules resolve these difficulties.

Key features

The changes will:

  • tax non-resident seasonal workers at a flat tax rate of 15 cents in the dollar;
  • deem non-resident seasonal workers to be non-resident for tax purposes; and
  • remove the requirement for these workers to file income tax returns.

Application date

The amendment to section 33A of the Tax Administration Act 1994 to remove the requirement to file income tax returns applies from the 2008–09 income year onwards. All other amendments apply from the 2009–10 and later income years.

Detailed analysis

Section RD 12 of the Income Tax Act which treats multiple payments received by an employee in a week as one payment has been amended so this section does not apply to non-resident seasonal workers.

Changes have been made to reduce the tax compliance costs faced by non-resident seasonal workers and deduct the correct tax from these workers. The definitions of “non-resident seasonal worker” and “recognised seasonal employment scheme” have been inserted in the definition sections – section YA 1. A non-resident seasonal worker is defined as a non-resident person employed under a recognised seasonal employment scheme. A recognised seasonal employment scheme is defined as a recognised seasonal employer policy published by the former Department of Labour, now the Ministry of Business, Innovation and Employment, under section 13A of the Immigration Act 1987.

The rules that deal with the residency of natural persons (section YD 1(11) have been amended to deem these non-resident seasonal workers, who would otherwise be treated as residents and taxable in New Zealand on their worldwide income, to be non-residents.

Also, a new tax deduction code, “NSW”, has been introduced for non-resident seasonal workers. The tax code requires tax to be deducted as a full and final flat tax rate of 15 cents in the dollar. Amendments are made to schedule 2, part A of the Income Tax Act and to section 24B(3) of the Tax Administration Act 1994 to give effect to this new tax deduction code and rate.

As non-resident seasonal workers are taxed at a flat tax rate which is full and final, a new section 24F(5) of the Tax Administration Act 1994 has been inserted to preclude non-resident seasonal workers from being issued with a special tax code.

The return filing requirements of section 33A of the Tax Administration Act 1994 have been amended to remove the requirement for non-resident seasonal workers to file an income tax return or personal tax summary.