Relief from use-of-money interest for foreign workers in New Zealand after the Canterbury earthquakes

Section 183CB of the Tax Administration Act 1994

Background

Foreign workers in New Zealand are subject to New Zealand tax if their stay here is long enough (typically 183 days but this varies). This includes foreign workers who have come to New Zealand for work that relates to the Canterbury earthquakes.

When the stay becomes long enough, New Zealand tax obligations are backdated to the first day of presence here. If New Zealand tax obligations are backdated and no tax has been withheld, the workers owe overdue tax.

Some workers have not arranged for tax to be withheld because they expected to be here for only short stays, but have since had their stays prolonged because of the unexpected continuation of aftershocks.

Currently, use-of-money interest is imposed on the overdue tax, but this is inappropriate in the circumstances, because workers may have become liable through extremely unusual events beyond their control.

Key features

The Tax Administration Act has been amended to relieve certain use-of-money interest for foreign workers in New Zealand following the Canterbury earthquakes.

The amendment applies to workers, including companies that have been contracted to do work here, that were not residents and did not have a significant presence in New Zealand at the time of the 4 September 2010 earthquake, but have since become subject to tax here.

The amendment relieves interest in two ways. Firstly, it relieves interest on tax that was required to be withheld from the income of the worker (for example, PAYE). This is relief for the person paying the worker. And secondly, it relieves interest on tax that would be paid directly by the worker (provisional tax). This is relief for the worker.

Interest relief ceases to apply from the date it was clear that the worker had a New Zealand tax liability. That is, relief ceases on the date exemptions in domestic law or double tax agreements could no longer apply. As noted above, this is often after 183 days of presence here, but could be less in some cases. In addition, interest relief cannot extend beyond 4 September 2011.

After the date relief ceases, the overdue tax liability needs to be settled and any further tax obligations need to be complied with to prevent new use-of-money interest accruing.

Application date

The amendment applies from 4 September 2010 until 4 September 2011.