Withholding tax changes for fruit picking contractors

The withholding payment regulations have been amended so that they apply to all fruit picking contractors, whether or not they operate through a company. The amendments have been made in response to concerns about tax evasion in the fruit picking industry because payments made to companies were automatically excluded from the withholding tax rules, while payments made to non-company based businesses were subject to the withholding payment rules.

The amendments were made by Order in Council on 29 August 2005.

They apply from 1 April 2006 for services provided for fruit and wine growing activities in the nature of pruning, thinning, picking and packing.

The exclusion previously available for companies in the fruit picking industry has been subject to abuse. This is because of the ease with which companies can be set up and dissolved and therefore used by fruit picking contractors to evade the payment of income tax and PAYE. This has been a concern because enforcement action becomes more difficult when highly mobile contractors leave the country before paying tax in New Zealand.

The main change is to ensure all payments made to contractors are reported to Inland Revenue. The changes also provide that 15% of a payment to a contractor will be required to be withheld as tax unless a contractor holds a certificate from Inland Revenue for a lower or a zero withholding rate.

Notice of the Order was made on 1 September 2005 in the New Zealand Gazette.

Income Tax (Withholding Payments) Amendment Regulations 2005 (2005/253)