Income Tax Act 2007

General collection rules - Employment-related taxes - Adjustments for certain PAYE income payments

RD 20B: Treatment of certain support payments made for period of more than 1 year

You could also call this:

"How tax is worked out for big payments that cover more than one year"

If you get a big payment that covers more than one year, the tax on it is worked out in a special way. This happens for some types of payments, like accident compensation or support payments from the Veterans’ Support Act 2014. The tax rate for the payment is decided by a formula that looks at your average tax rate over the last four years.

You can find more information about how tax rates are calculated in schedule 1, part A, clause 1 of the Income Tax Act. The tax rate for the payment will be either 10.5%, your average tax rate, or your tax rate for the current year, depending on which one is lower. If you get an accident compensation payment, the person making the payment must take out some tax before giving you the money.

The tax rate for this payment is either 10.5% or your average tax rate, depending on which one is higher. You can read more about tax obligations for employment-related taxes in section RA 5. The average tax rate is calculated by adding up your tax rates for the last four years and dividing by the number of years.

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This page was last updated on 20 May 2025

View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=LMS960469.

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Part RGeneral collection rules
Employment-related taxes: Adjustments for certain PAYE income payments

RD 20BTreatment of certain support payments made for period of more than 1 year

This section applies to a person for a payment (the multi-year support payment) that is made in a lump sum and relates to a period of more than 1 income year for the person and is—
an accident compensation earnings-related payment, except to the extent to which the payment is the conversion of weekly compensation to an aggregated payment under schedule 1, part 4, clause 67 of the Accident Compensation Act 2001; or
a personal service rehabilitation payment, except to the extent to which the payment is a reimbursement payment to which section CW 35 (Personal service rehabilitation payments) applies; or
a lump sum support payment made under the Veterans’ Support Act 2014, except to the extent to which the payment is—
1. a pension referred to in section CW 28 (Pensions):
2. an impairment payment relating to incapacity to work referred to in section CW 34 (Compensation payments).

The tax rate given by subsection (3) applies to the multi-year support payment for the income year in which the person derives the payment.
The tax rate referred to in subsection (2) is—
10.5%, if the rate given by the formula in subsection (4) (the average basic tax rate) is less than 10.5% and paragraph (c) does not apply; or
the person’s average basic tax rate, if neither of paragraphs (a) and (c) apply; or
the person’s basic tax rate for the income year in which the person derives the multi-year support payment, if that basic tax rate is less than the average basic tax rate.

The person’s average basic tax rate for this section is calculated over the period of the 4 income years (the rate averaging period) ending before the income year in which the person derives the multi-year support payment using the formula—
$total basic rates ÷ number of income years.$

Where:
In the formula in subsection (4),—
total basic rates is the sum of the person’s basic tax rate calculated under schedule 1, part A, clause 1 for each of the income years in the rate averaging period for which that rate is known by the Commissioner:
number of income years is the number of income years within the rate averaging period for which the person’s basic tax rate is known by the Commissioner and included in the total basic rates.

For the purposes of section RA 5 (Tax obligations for employment-related taxes), if the multi-year support payment is an accident compensation earnings-related payment, the person making the payment must withhold an amount of tax from the payment at the rate given by subsection (7).
The rate referred to in subsection (6) is,—
if the person’s average basic tax rate is less than 10.5%, 10.5%; or
in any other case, the person’s average basic tax rate.

Notes

Section RD 20B: inserted, on 1 April 2024, by section 116(1) (and see section 116(2) for application) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
Section RD 20B heading: replaced (with effect on 1 April 2024), on 29 March 2025, by section 123(1) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
Section RD 20B(1): amended (with effect on 1 April 2024), on 29 March 2025, by section 123(2)(a) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
Section RD 20B(1)(b): amended (with effect on 1 April 2024), on 29 March 2025, by section 123(2)(b) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
Section RD 20B(1)(c): inserted (with effect on 1 April 2024), on 29 March 2025, by section 123(2)(c) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
Section RD 20B(2): amended (with effect on 1 April 2024), on 29 March 2025, by section 123(3) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
Section RD 20B(3)(c): amended (with effect on 1 April 2024), on 29 March 2025, by section 123(3) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
Section RD 20B(4): amended (with effect on 1 April 2024), on 29 March 2025, by section 123(3) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
Section RD 20B(6): amended (with effect on 1 April 2024), on 29 March 2025, by section 123(3) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).