Withholding Tax for Cleaning Subcontractors NZ

Current for the 2025-26 tax year

If you run a cleaning business and pay subcontractors, you may have been told you need to deduct withholding tax from their invoices. Your subcontractor pays GST and files their own tax return, so why would you need to deduct anything? And does it matter whether they're cleaning homes or offices?

The answer is different for residential and commercial cleaning. Here's how it works. For the broader rules, see the main NZ withholding tax guide.

GST, income tax, and withholding tax - three different things

Most confusion starts here.

GST is a tax on goods and services. Your subcontractor charges 15% GST on their invoice, collects it from you, and pays it to IRD after claiming their own GST expenses. Nothing to do with income tax withholding.

Income tax is what your subcontractor pays on their business profit - through provisional tax during the year and a final tax return at year end. Also completely separate.

Withholding tax (schedular payments) is a third concept - and the one that catches cleaning business owners out.

Why does IRD require withholding tax at all?

IRD's concern is that some contractors - especially those working in industries like cleaning, construction, and agriculture - can end up with large unpaid tax bills at year end. They earn income throughout the year, spend it, and then struggle to pay when the tax bill arrives.

Withholding tax solves this by collecting tax earlier in the process. Instead of the subcontractor paying all their income tax at year end, the business paying them deducts some tax from each invoice and sends it directly to IRD.

For the subcontractor, it works the same way PAYE works for employees - tax is taken before the money lands in their account. The withheld amount becomes a tax credit when they file their tax return. It is not an extra tax. It is tax paid in advance.

Example: A cleaning company pays a commercial cleaning subcontractor $2,000 plus GST ($2,300 total) for a week's work. Withholding tax applies to the GST-exclusive amount - $2,000. At a 20% withholding rate, the company deducts $400 and sends it to IRD. The subcontractor receives $1,600 in their bank account plus the $300 GST separately. At year end, the $400 already paid to IRD reduces the subcontractor's tax bill dollar for dollar.

What the IR330C says - the key difference for cleaning

IRD publishes a list of activities that require schedular payments on the IR330C form. The relevant cleaning entry reads: cleaning office, business, institution, or other premises, except residential.

Two words matter: except residential.

This is the starting point. But as we'll explain below, the exclusion for residential cleaning does not automatically mean withholding never applies.

Commercial cleaning subcontractors

If your subcontractors clean offices, shops, warehouses, schools, medical centres, or any non-residential premises, their payments are schedular payments.

This means you must deduct withholding tax from their invoices - applied to the GST-exclusive amount only, not the full invoice total including GST.

Before paying a commercial cleaning subcontractor for the first time, get a completed IR330C from them. This form tells you their withholding rate. Important: the IR330C goes to you as the payer - not to IRD. You keep it on file and use it to calculate the deduction on every invoice.

Common withholding rates for commercial cleaning contractors:

If a subcontractor believes their circumstances mean they should pay less tax than the standard rate, they can apply to IRD for a tailored tax rate certificate showing a lower rate. You apply that rate instead.

Example: A cleaning company takes on a subcontractor to clean a chain of Auckland offices. Before the first payment, the subcontractor completes an IR330C nominating 20%. The company deducts 20% from the GST-exclusive amount on each invoice and pays it to IRD. At year end the subcontractor claims it as a tax credit against their total tax bill.

Residential cleaning subcontractors

If your subcontractors only clean private homes, the IR330C commercial cleaning category does not apply. Residential cleaning is explicitly excluded.

This means the standard commercial cleaning withholding obligation does not arise from that category alone.

Example: A cleaning company sends a subcontractor to clean family homes across Christchurch. The IR330C commercial cleaning category does not apply. No withholding obligation arises from that specific rule.

However - this is important - being excluded from one category does not guarantee that no withholding obligation exists under any other provision.

Other factors that could still create an obligation include:

• The arrangement looks like labour-only contracting rather than genuine subcontracting
• A labour hire arrangement exists between the parties
• The contract structure triggers another schedular payment category
• Your accountant is taking a conservative position to reduce your tax risk

If your accountant has told you to deduct withholding tax from residential cleaning payments, ask them to identify the specific IRD rule or legislative provision they are relying on - not just their general practice.

Mixed businesses - both residential and commercial

If your business does both, you need to track which subcontractor payments relate to which type of work.

If a subcontractor does both types of work for you, the simplest approach is to get an IR330C and apply withholding to all payments. It reduces your risk and keeps your records clean.

What to ask your accountant

Whether you do residential, commercial, or both, these are the right questions:

• Are my subcontractor payments schedular payments under the Income Tax Act?
• Which specific provision creates the withholding obligation?
• Does it matter whether the work is residential or commercial?
• Is this because of a labour hire arrangement?
• Should each subcontractor complete an IR330C?
• If withholding applies, what rate should I use?

A good accountant should be able to point to the specific IRD rule - not just their general practice.

FAQs

Useful calculators

If withholding applies, use the TaxPop Schedular Payments Calculator to estimate the deduction. For GST-exclusive and GST-inclusive amounts, use the TaxPop GST Calculator.

General information only - check IRD or your accountant for your situation.