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A prescribed withholding rate helps contractors pay the right amount of tax throughout the year and avoid ongoing tax debt. It can include a schedular tax rate that we set and a percentage of schedular payments that needs to be paid towards unmet liabilities.

When we set a prescribed withholding rate

We may set a prescribed withholding rate when a contractor has not met their tax obligations.

This helps to make sure that contractors do not end up with ongoing tax debt and ensures that any existing liabilities are met.

The prescribed withholding rate

A prescribed rate will be made up of a ‘prescribed rate of schedular tax’ and/or a ‘prescribed percentage’.

A prescribed rate of schedular tax sets a contractor’s withholding tax rate so that they pay the right amount of tax throughout the year and do not end up with another income tax bill. This rate is based on the contractor’s income from previous years.

A prescribed percentage is an extra amount withheld from schedular payments to help meet any tax liabilities a contractor already has.

A prescribed withholding rate will never be more than half of the schedular payment.

Prescribed withholding rates remain in place until we cancel them. They cannot be cancelled by the person receiving the payments.

Contractor responsibilities

You still need to register, file and pay tax for your schedular payments.

If we prescribe a withholding rate for you, we’ll send you a letter that tells you what the rate means. That letter will include a prescribed rate withholding certificate that you must give to anyone you do work for.

You cannot override your prescribed rate. Once your tax debt is cleared and you’re on the right track to meeting your future obligations, we’ll stop your prescribed rate.

Payer making schedular payments responsibilities

We send a letter to payers that we know are engaging a contractor with a prescribed withholding rate. This letter may list multiple contractors and their individual rates.

If you’re paying more than one contractor with a prescribed rate, you need to make sure to deduct the correct amount for each of them. Not all prescribed withholding rates are the same.

Deductions from payments to contractors

Last updated: 29 Aug 2024
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