PAYE and reporting of Employee Share Scheme (“ESS”) benefits
About the Authors:
Rebecca Armour
Partner - Tax at KPMG NZ
Rebecca leads the NZ Global Mobility Services team assisting companies to manage their globally mobile workforces with a focus on individual taxation issues and employment taxes. Previously from a leading international law firm in London, Rebecca also has broad experience in M&A.
Darshana Elwela
Partner - Tax at KPMG NZ
Darshana has over 15 years experience as a tax advisor and senior IRD policy official. Based in Auckland, he specialises in funds management, international tax, and tax policy issues.
From 1 April 2017, all ESS benefits relating to your New Zealand employees must be disclosed as part of the Employer Monthly Schedule (“EMS”). Employers will also have the option to withhold PAYE on ESS benefits on behalf of their employees.
IRD has released guidance on how the EMS should be completed for ESS benefits, where PAYE is deducted and not. Where no election to withhold PAYE is made, the disclosure of the benefits in the EMS will give rise to “No PAYE deductions are showing where an employee has positive gross earnings” errors. To prevent these errors arising, and reduce administration associated with dealing with IRD queries when the EMS is processed, it is recommended that employers contact IRD in advance of the EMS filing.
Employers should provide IRD with a list of the employees who are participating in their ESS. A phone number ( 0800 443 773 ) is provided for those without a direct IRD contact.
Employers will have the choice whether or not to withhold PAYE on ESS benefits (e.g. to help employees avoid provisional tax liabilities). This can be made on an employee by employee basis or on a benefit basis for each employee.
The ability to apply the PAYE withholding to individual employees, and benefits, is an important change from the initial legislation. The initial legislation treated the decision to withhold tax from ESS benefits as irrevocable and applying to all employees of the same class in the ESS. This will give employers greater flexibility and means the PAYE election is worth a closer look.
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