Depending on who you talk to or what you read, there are a lot of terms and acronyms that get thrown around – all of which you have to figure out when it comes to understanding tax. Hopefully, the following definitions can help cut through some of the confusion.
- ACC Levies are another tax that you pay that goes towards universal coverage for injury claims for all New Zealanders. Your levy rate is set based on the type of work you do (see "BIC Code" below). For more info, see ACC Levies
- This is your Business Industry Classification code and is used as a way of classifying a self-employed person or business by their main activity (e.g. the service or product you provide to others). This code defines which ACC levy rate you should be on, and is also used by IRD and Statistics NZ for reporting and statistical purposes.
- Business Expenses are costs you have incurred in the course of undertaking self-employed work, for which you are not being reimbursed by a client. You claim business expenses in order to get tax relief on work-related purchases. For more info, see Why Claim Business Expenses?
- Different types of business expenses have different rules about how much can be claimed for tax relief. The Claimable Amount is the proportion of the total expense that you are permitted to claim for that category, either based on the category itself or the proportion of the cost that can be associated to your self-employed work.
- See Business Expenses above
Client Chargeable Expenses
- A Client Chargeable expense refers to any cost that you have incurred in order to complete work for a client, for which that client has agreed to reimburse you. For more info, see our guide to Client Chargeable Expenses in Hnry.
- This is taxable income earned from investment profits and needs to be declared via your Income Tax Return. You'll need to indicate any imputation credits you’ve incurred or resident withholding tax that has already been deducted (you should be provided this information at Year End by the payee)
- Drawings refer to the withdrawal of cash or assets from the company by the owner(s) for personal use.
- Some contractors can apply for a certificate of schedular payment exemption. These contractors pay all their tax at the end of the tax year instead of having the tax deducted from each schedular payment.
Note: certificates of exemption can only be used for schedular payments. They cannot be used for salary or wages.
- The ‘Financial Year’ runs from April 1 - March 31 each year. Your tax returns cover all earnings and expenditure within this period.
- This is a prediction of what your earnings are likely to be going forward (based on historical earning patterns) for the Financial Year
Fringe Benefit Tax (FBT)
- This is an additional tax that is payable by employers on non-cash or in-kind benefits provided to employees
GST (Goods & Services Tax)
- GST is a 15% tax that gets added to the total price of the product or service being purchased and goods and services are advertised as GST inclusive. For more info, see What is GST?
- Any kind of subsidy you receive from the New Zealand government is subject to taxation, as it is considered a source of income. For more info, see our Government Subsidies article.
Home Office Expenses
- Home office expenses are related to purchases you make for your home workspace, if you conduct any of your work from home. For more info, see Home Office Expenses
- Imputation credits effectively match the New Zealand income tax paid by the company. To avoid double taxation of dividends, imputation credits can be transferred to shareholders to reduce or eliminate the tax shareholders have to pay on dividends.
- Income Tax (INC) is the generic term used to describe the tax paid against your earnings, regardless of how you earn it. For more info, see Income Tax and its alias
- A term used to describe someone who earns any income outside of a salaried role. If you refer to yourself as a freelancer, contractor, sole trader, 'gig economy' worker, or something similar, you're considered an independent earner in the eyes of IRD and must complete an IR3 tax return at the end of the financial year (also see 'Self-Employed').
IR3 (Income Tax Return)
- This is the tax return that you must file at the end of each Financial Year to declare any income and expenses you have from earnings other than from your regular salary/wages e.g. Overseas income, Schedular Payments etc
- Note: Hnry will file your Income Tax return for you as part of the service.
IR3R (Rental Property Return)
- The same as the IR3, but is used to declare all income and expenditure associated with a rental property you own
- This is the IRD form your Recruiter or Third Party is legally required to get you to complete, which specifies the Withholding Tax (WT) rate that you're to use when making Schedular Payments. For more info, see Withholding Tax and IR330C Forms
- This is a business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task e.g. a new project or any other business activity. A joint venture is its own entity, separate from the participants' other business interests. It is not subject to Income Tax and is not required to file an income tax return (as this is done via the Participants Individual tax returns). However, it is treated as a separate entity for GST purposes and must file GST returns on its own account.
- KiwiSaver is a voluntary savings scheme for retirement, available to individuals who are either New Zealand citizens or permanent residents.
Losses brought forward
- If you made a loss in the previous financial year i.e. you spent more than you earned, then you can include this loss in the next financial year's tax return in order to reduce that amount of tax you need to pay - it essentially starts your earnings for the next financial year in the negative.
- If you are not wanting to claim the actual costs incurred in running a Motor Vehicle for business purposes, you can instead choose to claim mileage. Claiming mileage allows you to claim a flat-rate per km, multiplied by the number of kms travelled for business. For more info, see How to claim mileage
Non-Resident for Tax Purposes
- If you are overseas and are not considered a Tax Resident of New Zealand (see below "Tax Resident") but you have received income (including rental income or interest/dividends) from New Zealand that has not been taxed and/or has been taxed at the wrong rate, then you are still required to file Income Tax returns in New Zealand.
Non-Resident Withholding Tax (NRWT)
- This is a tax that is deducted from the interest that a non-resident customer earns from the bank. Typically this is either 10% or 15%, but it will be based on the tax treaty between New Zealand and your country of residence.
- If you have received income from overseas, such as interest from an overseas investment, rental income from an overseas property, salary & wages from overseas or foreign pension then these must all be declared as income on your NZ Income Tax return.
- You should be able to claim a credit for tax you’ve paid to another country.
- If you were a New Zealand tax resident for part of the tax year, your income earned as a resident needs to be declared separately from your non-resident income.
- Income Tax paid for employees who earn a wage or salary (this applies to you if you get Annual Leave, Sick Leave and KiwiSaver contributions from your employer). For more info, see Income Tax and its alias
- Provisional Tax is the term used when you are required to pay your income tax in 3 equal instalments throughout the year rather than paying it as you go, or in one large sum at the end of the year. For more info, see Income Tax and its alias
Quarter (Financial Year)
- The quarters within a tax year are as follows: Q1 = April-June; Q2 = July-September; Q3 = October-December; Q4 = January-March
Resident Withholding Tax (RWT)
- This is the form of Income Tax you pay on interest and dividends you earn from bank accounts and investments you have in New Zealand. For more info, see Income Tax and its alias
- Schedular payments are payments made to contractors who perform certain activities. Some tax is deducted from these payments, but because they're different to salary or wage payments you may have some tax left to pay on your earnings from the Financial Year.
- You will need to complete an IR330C form when being paid via Schedular Payments.
- NB: As soon as you receive a payment via Schedular Payments, this automatically flags you as self-employed with IRD, and you will then be required to complete an IR3 tax return at Year End. For more info, see Income Tax and its alias
- This is the tax code required for non-Hnry customers that have more than one source of income. As your employers don’t know about your other sources of income, the secondary tax code ensures you are taxed at a higher rate on your other sources of income so you don’t end up with an unexpected tax bill at the end of the year.
- IRD's definition of self-employed refers to anyone who conducts business activity on their own – as a freelancer, contractor, sole trader, or small business owner – rather than in a more traditional employer relationship. Anyone earning self-employed income is required to complete an IR3 tax return at the end of the financial year.
- Tax Credits reduce the amount of income tax otherwise payable
- You are considered a tax resident in New Zealand if you: are in New Zealand for more than 183 days in any 12-month period and haven't become a non-resident, or, have a 'permanent place of abode' in New Zealand, or are away from New Zealand in the service of the New Zealand government.
- Terminal tax is the difference between the amount of tax paid during the year and the actual amount owed (also known as the end of year tax bill for non-Hnry customers). For more info, see Income Tax and its alias
- An umbrella company is a third party company that acts as an ‘employer’ on behalf of its contractor 'employees'. This company signs an agreement with the recruitment agent (or end client) on behalf of the contractor who will be carrying out the assignment. The umbrella provides a payroll service to its employees, declaring all income to IRD as PAYE Income meaning the contractor is not trading independently. Hnry is NOT an umbrella company as we believe our customers should maintain their independence and keep the relationship between themselves and their clients without third party involvement.
- When you choose to make additional payments (contributions) over and above the minimum obligation – e.g. additional Student Loan repayments over and above the minimum 12%.
Withholding Tax (WT)
- This is the term used by IRD to refer to Income Tax for Self-employed people being paid via Schedular Payments (see Schedular Payments). For more info, see Income Tax and its alias
- Accounting software that you won't need if you're with Hnry
YTD (Year to Date)
- This is the point in the financial year from the 1st April
- The period ending 31 March 20xx marks the end of Financial Year and defines the “Tax Year” that IRD refer to e.g. Financial Year ending 31 March 2020 is known as the “2020 Tax Year”
Zero-Rated for GST
- If your Client is based outside of New Zealand (with no New Zealand presence), then they are considered Zero-Rated for GST – this means that if you are GST-registered, you do not need to charge them GST on top of your fees.