Withholding On GST Exclusive Amount
Withholding on GST exclusive amount means the payer applies the WT rate to the contractor’s fee, not to the GST line. Inland Revenue writes that rule in Employer’s guide IR335 and in interpretation statement IS 17/06.
GST is still 15% on a taxable supply when you are registered, or when you add GST to prices. That GST is not extra withholding. Mix the two totals and the bank deposit is wrong, and the employment information figure is wrong.
| Line on the Inland Revenue example | IR335 (Michael, 20% WT) | IS 17/06 (Ophelia, 20% WT) |
|---|---|---|
| Fee, exclusive of GST charged | Labour cost $500.00 | Director’s fee $1,000.00 |
| GST at 15% | Plus GST $75.00 | GST on the fee $150.00 |
| Taxable supply / invoice total before WT | $575.00 | $1,150.00 for the fee and GST (Ophelia also invoices $83.60 taxi reimbursement) |
| Withholding | 20% of $500.00 = $100.00 | 20% of $1,000.00 = $200.00. No WT on the taxi reimbursement. |
| Paid to the contractor | $400.00 net schedular payment plus $75.00 GST = $475.00 | $1,033.60 ($1,000 minus $200 tax plus $150 GST plus $83.60) |
| Employment information | $500 gross, tax code WT. GST $75.00 is an expense in the payer’s GST return. | WT on the fee only. Reimbursement is not a schedular payment in that example. |
Official rule in one sentence
IS 17/06 paragraph 54: once you have determined the appropriate withholding rate, you must then apply that rate to the total amount of the schedular payment, exclusive of any GST charged. Income Tax Act 2007 section RD 10, as quoted in that statement: on the basis of the gross amount of the payment, other than GST.
IR335’s labelled GST registered contractor
Employer’s guide IR335: if your contractor is GST registered, they may give you taxable supply information charging GST. Michael uses tax code WT. Activity rate 20%. Sarah works out the tax on the GST exclusive amount.
IR335 figures, copied
$500.00 fee
plus $75.00 GST
less $100.00 WT (20% of $500.00)
= $475.00 paid to Michael
Inland Revenue’s tax schedular payments page says multiply the contractor’s tax rate by their gross payment. Read that with IR335: the gross pay amount Sarah files is $500, not $575. Who files that return sits on the Withholding and Schedular hub. A live split on your own invoice sits on the withholding tax calculator.
Caution: GST registered does not mean skip WT
IS 17/06: in the past, some taxpayers believed they were not required to withhold any tax from directors’ fees they paid to a GST registered director. That is not the case. Whether a person is registered for GST is irrelevant when determining if you must withhold. The GST exclusive method is how you withhold, not a reason to stop withholding. GST on directors fees and honoraria is the GST charge question. This page is the WT base.
What people get stuck on
JDW’s contractor invoice uses the same $1,000 fee, $150 GST, and $200 WT as IS 17/06’s fee lines. That invoice math matches Inland Revenue. JDW’s extra talk about $100,000 income and a $5,000 terminal tax bill is not on the IR335 or IS 17/06 pages opened for this article. Do not treat that residual as a published Inland Revenue threshold.
nzpayecalculator.nz also says withhold on the GST exclusive amount only. Follow that point. Drop its nominated 10% to 40% cap: that ceiling is not on IS 17/06 or IR335. Rate choice sits on choose your own schedular rate. Do not copy that site’s $5,000 scaffolding example. The dollar lines above are Inland Revenue’s.
r/newzealand building threads take 20% of the labour line and leave the GST intact. That matches IR335. r/PersonalFinanceNZ commission threads mix a GST inclusive client fee with a 50% cut. Invoice your own fee exclusive, add GST if you are registered, then WT on that fee. Quora posts that still use a $40,000 GST threshold are stale. Inland Revenue’s registering for GST page: $60,000 in the last 12 months or the next 12 months, or you add GST to prices. Inland Revenue’s about schedular payments for contractors page: $60,000 a year or more (before expenses) from schedular payments, or you add GST onto your prices.
Inland Revenue’s withholding taxes page: withholding tax is a type of income tax deduction. A company deducting from schedular payments to contractors is the example next to a bank deducting RWT from interest. GST is not that deduction. Contractor invoices: GST for contractors basics.
Pull highlight: IR335, Sarah works out the tax on the GST exclusive amount. IS 17/06, apply that rate exclusive of any GST charged.
Use case: IR335 Michael, labelled
Situation: Inland Revenue’s own GST registered contractor. Taxable supply information $575.00. WT 20%.
Action: withhold $100.00 from $500.00. Pay $475.00. File $500 and WT. Put $75.00 GST through the payer’s GST return. Do not withhold from the GST line.
Use case: IS 17/06 Ophelia, labelled
Situation: Inland Revenue’s GST registered director. Fee $1,000.00, GST $150.00, taxi $83.60.
Action: withhold $200.00 from the fee only. Pay $1,033.60. A certificate of exemption is a different path with no WT: certificate of exemption IR331. GST on the fee still follows registration, not that certificate.