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Inland Revenue

Tax Policy

Voluntary withholding agreements

(Clause 93(19))

Summary of proposed amendment

The proposed amendment will allow contractors not covered by the schedular payment rules to opt in to the rules with the consent of their payer.

Application date

The proposed amendment comes into force on 1 April 2017.

Key features

Contractors that are not subject to the schedular payment rules will be able to enter into voluntary withholding agreement with their payers. If an agreement is entered into, the contractor becomes subject to the schedular payment rules and the payer will be required to withhold from payments made to them.

The proposed amendments insert Part W into Schedule 4 of the Income Tax Act.

Part W sets out that a payment to a person is a schedular payment when:

  • There is no obligation to withhold from the payment under the Income Tax Act 2007 or the Tax Administration Act 1994.
  • The contractor and their payer have agreed to treat the payment as a voluntary schedular payment, and have recorded their agreement in a document.

If the above two criteria apply, then the schedular payment rules apply and the payer is required to withhold from the contractor at the rate selected by the contractor (as per the proposed amendments outlined in “Allowing contractors to elect their own withholding rate)”.

Payments covered by voluntary withholding agreements are excluded from the definition of employer and employee for the purpose of the FBT rules. This means that fringe benefit tax does not apply when fringe benefits are provided to contractors under voluntary withholding agreements.


Currently contractors not covered by the schedular payment rules are not able to have tax withheld on a payday basis. Many of these contractors may prefer to pay their tax through the schedular payment rules.