Second Canterbury, Nelson, Marlborough and West Coast Battalion Group.

Third Auckland (Countess of Ranfurly's Own) and Northland Battalion Group.

Fourth Otago and Southland Battalion Group.

Fifth Wellington, West Coast and Taranaki Battalion Group.

Seventh Wellington (City of Wellington's Own) and Hawke's Bay Battalion Group.

The Army Reserve is the part-time component of New Zealand's Army, with a mission to provide trained individual volunteers and formed groups of soldiers for overseas operations.

Value of the Reserves

Tax Changes: Allowances, Payments and Benefits 1 April 2010

The Defence Force has been in discussion with the Inland Revenue Department (IRD) since 2006 regarding the taxation status of non-operational allowances, payments, and benefits that are currently not taxed. The IRD has ruled that from 1 April 2010 all non-operational allowances, payments and benefits are liable for taxation.

What does this mean for me?

This means that you will now have to pay tax on each non-operational allowance you receive. For most this will cause a reduction in the amount you receive in your payslip (your NETT amount).

This change is outside the control of the NZDF. In implementing this change, the Executive Leadership Team and I recognise that this may cause financial strain on some Defence Force personnel. Accordingly, we asked Personnel Branch to explore ways to lessen the effects of the IRD decision.

We have decided to “gross up” affected entitlements by 38 percent to ease the impact of this change. This means that the cost of taxation at a rate of 38 percent has been added to each entitlement, so that when the entitlement is paid and tax is deducted, you should see less difference to your NETT amount than you otherwise would.

Although this measure will mostly offset the financial impact of the tax change, and cost NZDF $6.9M to implement, it will not be enough to fully protect NETT entitlements for everyone. Depending on your individual circumstances and your particular tax bracket, your NETT entitlements may still reduce.

What else will be affected?

This change will also impact superannuation contributions, particularly KiwiSaver and DFSS Cat B. As these taxable allowances will be added to gross taxable income, they will be included in calculating your fortnightly superannuation contributions. So although you may see less in your take home pay, you will be contributing a greater amount to your superannuation scheme. NZDF employer contributions will rise accordingly.

Additionally, there may be other implications related to this change that NZDF can’t control. For example, these changes might have an impact on benefits such as Working for Families, student loans and liable parent contributions. If you have concerns or questions about how these changes will affect your personal situation with regard to government payments, I strongly encourage you to seek more information by contacting IRD on 0800 227 774.

Is there anything not included in this change?

Operational allowances are not included in this ruling. Official business expenses, supported by receipts, claimed on an ‘actual and reasonable’ basis are also not affected.

Therefore, in order to avoid passing on more tax charges to individuals, from 1 April 2010 all automatic payment of allowances such as daily meal rates will cease. We will continue to reimburse for expenses you incur in the course of conducting official NZDF business but we will do this on an actual and reasonable basis and upon the production of receipts.

This page was last reviewed on 9 March 2010, and is current.