The Inland Revenue Department (IRD) has recently issued a Revenue Alert highlighting its concerns about contractor payment practices in New Zealand’s horticultural sector. The alert signals increased compliance activity across the industry, with a particular focus on kiwifruit growers, contractors, post-harvest operators, and management companies.
Why IRD Is Taking a Closer Look
IRD has identified several areas of concern, including:
- Failure to correctly deduct withholding tax on schedular payments made to contractors performing cultivation contract work.
- Contracting arrangements designed to obscure the true supplier of labour, including false invoicing and artificial structures.
- Cash wage payments that bypass PAYE obligations and may raise money-laundering concerns.
As a result, IRD has indicated it will increase scrutiny on contractor payment arrangements in the horticultural sector, particularly around withholding tax obligations, labour contracting structures, and cash wage payments.
Understanding Your Obligations
If you engage contractors to carry out cultivation work, you may be required to deduct withholding tax from payments made to those contractors, file payroll information, and remit the tax to IRD. Importantly, these obligations can apply even when the contractor operates through a company.
The standard withholding rate for cultivation contract work is 15%. However, if a valid IR330C form is not held for the contractor, the withholding rate can increase significantly to 45%.
These obligations are not limited to orchard owners. They can also apply to management companies and contractors further down the labour supply chain.
What IRD Will Be Focusing On
According to the Revenue Alert, IRD’s increased compliance activity includes:
- Closer review of new GST registrations within the horticultural sector.
- Greater focus on certificates of exemption and tailored tax rate arrangements.
- More active pursuit of outstanding tax debt.
- Information sharing with other government agencies where other offending is suspected.
The Cost of Getting It Wrong
The consequences of non-compliance can be severe. IRD has highlighted that tax evasion offences may result in substantial financial penalties, imprisonment, or both, alongside civil penalties that can significantly increase the overall tax liability.
Practical Steps to Take Now
Businesses operating in the horticultural sector should consider reviewing their contractor payment processes and documentation. Key areas to check include:
- Holding a current IR330C form, certificate of exemption, or tailored tax rate documentation for all relevant contractors.
- Ensuring withholding tax is being deducted at the correct rate.
- Maintaining adequate records for at least seven years.
- Avoiding cash payment arrangements for labour.
Need Help Reviewing Your Position?
With IRD signaling increased enforcement activity, now is an appropriate time for growers, contractors, and related businesses to review their labour and contractor arrangements. Identifying and correcting issues early can reduce potential exposure and help ensure compliance with current tax obligations.
For businesses unsure whether their contractor arrangements meet current requirements, seeking professional advice can provide clarity and help address any issues before they become a problem.
Frequently Asked Questions
What is the IRD Revenue Alert about horticultural contractors?
IRD has flagged horticultural and kiwifruit contractor payments as a compliance focus area. The alert targets growers and contracting businesses that are not correctly withholding tax from contractor payments under the schedular payments rules.
Do growers need to deduct withholding tax from contractor payments?
In most cases, yes. Payments to contractors in the horticulture and viticulture industries are schedular payments, which means the payer is generally required to deduct withholding tax at the time of payment, rather than the contractor paying it later through their own tax return.
What is an IR330C form and why does it matter?
An IR330C is the form a contractor completes to elect their withholding tax rate. If a contractor hasn’t provided a completed IR330C, the payer must withhold tax at the non-declaration rate of 45%, which is significantly higher than most contractors’ correct rate.
What happens if a business gets this wrong?
Getting withholding tax wrong can mean penalties and interest for the paying business, plus the cost and disruption of correcting historical payments once IRD reviews them. It can also affect the contractor’s own tax position if the wrong amount has been withheld.
References
Inland Revenue. (2026). Non-compliance in the horticultural sector (Revenue Alert RA 26/02). Tax Technical. https://www.taxtechnical.ird.govt.nz/revenue-alerts/2026/ra-26-02
Inland Revenue. About schedular payments for contractors. ird.govt.nz. https://www.ird.govt.nz/income-tax/withholding-taxes/schedular-payments/about-schedular-payments-for-contractors
Inland Revenue. Work out and declare my tax rate for schedular payments. ird.govt.nz. https://www.ird.govt.nz/income-tax/withholding-taxes/schedular-payments/getting-schedular-payments/work-out-and-declare-my-tax-rate-for-schedular-payments
Inland Revenue. Deductions from payments to contractors. ird.govt.nz. https://www.ird.govt.nz/income-tax/withholding-taxes/schedular-payments/making-schedular-payments/deductions-from-payments-to-contractors
