Non-resident seasonal workers

Section YA 1, and schedule 2, part A, clause 8 of the Income Tax Act 2007; section 33A of the Tax Administration Act 1994

As a result of recent changes to personal tax rates, the tax rate that applies to non-resident seasonal workers has been reduced from 15% to 10.5%. In addition, a number of changes have been made to the tax legislation to clarify that non-resident seasonal workers are not required to file a tax return at the end of the year but may do so if they choose to. The measures were introduced by Supplementary Order Paper No. 187 during the passage of the Taxation (GST and Remedial Matters) Bill.

Background

The Recognised Seasonal Employer (RSE) scheme was introduced in April 2007. The RSE scheme allows for the temporary entry of overseas workers to work in the horticulture and viticulture industries in New Zealand. The tax legislation was amended in 2009 and now defines a worker under the RSE scheme to be a "non-resident seasonal worker". The rate of tax that previously applied to non-resident seasonal workers that elected the NSW (non-resident seasonal worker) tax code was a flat rate of 15%. The need to review the rate of tax arose as a result of the recent changes to the personal tax rates, particularly from Budget 2010.

Key features

The changes that have been made to the tax rules for workers under the RSE scheme are:

• a change to the flat rate of withholding tax that applies to workers under the RSE scheme;
• changes to correct the current filing requirements for workers under the RSE scheme; and
• a change to the commencement date of the definition of "non-resident seasonal worker".

Detailed analysis

Change of rate

After analysing data from the relevant industry a policy decision has been made for the rate of tax that applies to non-resident seasonal workers that elect the NSW tax code to be reduced from 15% to 10.5%.

From 1 October 2010, the personal tax rate for workers earning up to $14,000 per annum was reduced to 10.5%. The large majority of non-resident seasonal workers have an annual New Zealand income of less than $14,000, therefore a withholding rate of 10.5% is appropriate. It would be more accurate for the new rate to apply from 1 October 2010 (the date that the personal tax rates changed) however, due to compliance costs and the small numbers of workers and wages involved, it was decided that the best date for the new rate to apply from would be 1 April 2011.

Filing requirements

There has been no change in policy regarding the filing requirements for non-resident seasonal workers. These workers may still file a return at the end of the year but are not required to. Changes have been made to section 33A of the Tax Administration Act 1994 to clarify this policy intent.

As the rate that applies to non-resident seasonal workers is now equal to the lowest personal tax rate, from the 2011-12 tax year there will no longer be any benefit to the workers in filing a tax return. That is, due to them having tax withheld at the lowest rate, it will no longer be possible for them to have tax over-withheld during the year. It should be noted that workers may face a tax liability if they choose to file a tax return at the end of the year and have annual New Zealand income of more than $14,001.

"Non-resident seasonal worker" definition

The commencement date of the definition of non-resident seasonal worker has been changed from 6 October 2009 to 1 April 2008. This change ensures the definition is in force at the earliest date the tax provisions applying to non-resident seasonal workers and the RSE scheme apply from.

Application dates

There are various application dates for the above changes. The new 10.5% rate of tax will apply from 1 April 2011. The changes correcting the filing requirements apply from the date that they were originally intended to apply from.