It is now the season of tax refund and there’s quite a bit of discussion going along with regards to how much each and everyone is getting back and I thought that it would be good to do round up all the queries and confusion that everyone has with regards to this matter.
How does Income Tax work?
Most companies practice the ‘Pay As You Earn’ PAYE scheme whereby they will project your weekly salary to the annual amount and deduct your taxes directly. Assuming you work 40 hours a week at min. wage, your tax deducted would be about 16.5% and your weekly take-home pay would be about $640-650 after 8% holiday pay.
How are taxes calculated?
Tax deducted = Income tax + ACC Earners’ Levy (non-refundable)
ACC Levy is 1.39%
*Information above is accurate as of 2020.
(Example) You work 40 hours a week, earn $18.50/hour, Holiday Pay is at 8%.
|Gross Income||Tax Deducted||Take Home Pay|
|40 hours x $18.50 x 1.08 = $799.20||$132.12*||$667.08|
*Calculation for Tax Deducted
Annual Income based on weekly salary = $799.20 x 52 weeks = $41,558.40
Tax for first $14,000 = $14,000 x 10.5% = $1,470
Tax for income above $14,000 and below $48,000 = ($41,558.40 – $14,000) x 17.5% = $4,822.72
ACC Earners’ Levy = $41,558.40 * 1.39% = $577.67
Estimated weekly tax deduction based on projected annual income = ($1,470+$4,822.72+$577.67)/52 = $132.12
What is ACC Earners’ Levy?
ACC Earners’ Levy is a premium paid by NZ workers to cover the cost of non-work related injuries. It is collected by Inland Revenue on behalf of the Accident Compensation Corporation (ACC). For most people, ACC Earners’ Levy will be automatically deducted from their pay and remitted to IRD by their employer.
When will I get a tax refund?
The tax year runs from 1 April till 31 March (e.g. 1 April 2019 to 31 March 2020). At the end of the tax year, the Inland Revenue Tax department (IRD) will calculate your annual income based on the tax year and refund you a portion of the tax money that you have overpaid.
Update (May 2020): For those who did not file taxes, it was automatically refunded between mid-May to June 2020 (for the Financial Year from 1 April 2019 to 31 March 2020).
How do I calculate my tax refund?
To calculate your tax refund, you first need to know how much you have earned (gross income) during the tax year.
Gross income means the income you earn, inclusive of holiday pay, before deducting for taxes. It is NOT your take-home pay.
In my sample payslip below, my gross income = $799.20
The images below are extracted from my IRD account.
Okay, so you need to find out what is your gross income for the entire tax year. In my case, this is $19,820.93 and I have paid $3,229.96 worth of taxes (which includes ACC Earners’ Levy).
Taxes calculated based on my actual income in the tax year
Tax for first $14,000 = $14,000 x 10.5% = $1,470
Tax for income above $14,000 and below $48,000 = ($19,820 – $14,000) x 17.5% = $1,018.50
Total income tax payable = $1,470 + $1,018.50 = $2,488.50
ACC Earners’ Levy = $19,820.93 x 1.39% = $275.51 (non-refundable)
Income tax refund received = $3,229.96 – $275.51 – $2,488.50 = $465.95
And TA-DA! This exact amount was credited to my bank account.
Am I able to request an early tax refund?
Yes, it is absolutely possible but the process is a little annoying.
First, you need to be 100% sure that you are no longer going to earn any income in New Zealand. Next, you kind of need a proof that you are leaving the country. The easiest type of proof is your air ticket.
I have heard of friends managing to do the request over the phone but for my case, I was directed to submit a request via the IRD portal.
Estimated time required to see the money in your account: 2 days to 1 month (base on several friends experience)
- Login to IRD > Home > Correspondents > Draft Messages > Send Message
- Send them a message. Recommended Below:
Subject: Early Tax RefundMy recommended message will be:
Hi there, I would be leaving the country on (state date) and I would like to request an early tax refund.
My last working day was (state date) and I have received my final pay. I will no longer be working for the rest of my stay here.
My tax residency will be (state your home country).
Please see attached for my eTicket (please upload attachment) where I will be leaving the country.
I would appreciate if you can assist me with the tax refund prior to my departure.
- Wait for them to reply (could take up to 1 week) and they will ask you to complete the tax return in the ‘myir’ portal. I can’t recall the steps but there were additional buttons (I think it was ‘FILE NOW’ and you could click to declare your income. Do ensure that you select ‘Part Year Return’.
- Also, please ensure that you have added a bank account for them to credit the refund to.
Note: I credited the money to my ANZ bank account and transferred the money back to my Singapore account using TransferWise (will share on the process at the end of article)
How do I pay lesser taxes?
The best way to pay lesser taxes is to start your working holiday between the two tax years. If you have a 1 year visa, you should start in October and your annual tax will be computed based on 6 months salary, instead of the usual 12 months. Assuming you earn less than $14,000 in those 6 months, your tax rate will only be 10.5%!
Should you feel upset about paying taxes while working in New Zealand?
Transferring money back with TransferWise
As my tax refund came in after I have left the country, I decided to use TransferWise to bring my money home.
If you have not heard of TransferWise, it is basically a FinTech that assists you with the remittance of money, with one of the lowest fees in the market!
Please note that the transaction that I have done was from NZD to SGD and I received the money almost instantaneously!
Their process time may differ according to the different currency pairings so I’m not able to advise for other currencies but I do know a lot of my malaysian friends use it as well.
Assuming if it’s your first time using TransferWise, you will be entitled to a discount applicable up to the transfer of $1,000 SGD (Discount of 7.40 NZD, left image).
If it is not your first transfer, you will have to pay 0.68% fees which is rather reasonable in comparison to their alternatives.
One thing to note, in order to enjoy these attractive rates, you have to use your local bank account (SAME NAME) to make the transactions and the process is a lot simpler when the accounts belong to your names. Identification documents (passport or NRIC) has to be uploaded in order for your transaction to be processed. It may be slightly inconvenient but I believe it is very necessary to prevent money laundering.
And if you’re wondering.. would it have been better if I brought home NZD (in cash) and visited the money changer to get back SGD?
Well, the answer is no! You would in fact be losing out on $10 (even without the first-time user discount).
Anyway, here’s my TransferWise referral link where you can receive a free transfer (up to 900 SGD or equivalent) for your first transaction!
Any questions with regards to tax refunds?
Feel free to leave a comment below or DM me on Instagram @flyhoneystars if you’re too shy!