PAYE vs IR3: Do You Need to File a Tax Return in NZ?
For most New Zealanders, PAYE handles the entire tax year and IRD's automatic assessment closes the loop in May. But if your income strays outside salary, wages, interest, and dividends, you need an IR3. Here's the line.
Quick-check decision table
| Income type | PAYE auto-assessment OK? | Must file IR3? |
|---|---|---|
| Salary or wages (one or more jobs) | Yes | No |
| Bank interest, NZ dividends | Yes (with RWT) | No |
| PIE income (KiwiSaver, managed funds) | Yes | No (PIR taxes at fund level) |
| Self-employment, contracting, sole trader | No | Yes |
| Rental property (residential, commercial, short-stay) | No | Yes |
| Overseas income over $200 (FIF, foreign pension, foreign dividends) | No | Yes |
| Bright-line property sale | No | Yes |
| Partnership / LTC / trust beneficiary income | No | Yes |
| Schedular payments (WT code) | No | Yes |
| Donation tax credit claim ($5+ donations) | Yes (file IR526 separately) | Optional via IR3 |
Not sure? Run the IR3 filing checker — six questions, instant answer.
How PAYE alone reaches the right tax
PAYE is annualised. Your employer takes your gross pay for the period, multiplies up to a year, applies NZ's progressive brackets (10.5% / 17.5% / 30% / 33% / 39%) plus 1.67% ACC earner's levy, and divides back. As long as you're on the correct tax code (M, ME, M SL, ME SL, or the right secondary code), PAYE plus the year-end automatic assessment lands on essentially the right number — and IRD pays a refund or sends a small bill.
IRD's auto-assessment only works because it can see all your reportable income via payday filing, RWT-on-interest reporting, and PIE/PIR data. The moment income flows from a source IRD can't see automatically, the auto-assessment is incomplete and an IR3 is required.
When PAYE breaks: the IR3 triggers
- Self-employment — Any sole-trader or contractor income (other than schedular WT) is paid gross. You must file an IR3, claim deductions, and pay terminal tax by 7 February.
- Rental property — Residential, commercial, or short-stay rental requires an IR3 with an IR3R schedule. Interest deductibility was fully restored from 1 April 2025 (after the 2021 phase-out reversed).
- Overseas income — Anything over $200/year from foreign sources triggers IR3. FIF investments above the $50,000 threshold add an FDR / CV calculation.
- Bright-line — Selling residential property within 2 years of purchase (post-1 July 2024) is taxable. Disclosed on IR3 in the year of sale.
- Trust / partnership distributions — Beneficiary income or LTC attributions need IR3 reporting and proper RWT credit handling.
Key dates for 2025-26
| Date | What happens |
|---|---|
| 31 March 2026 | 2025-26 tax year ends |
| Late May 2026 | IRD starts issuing automatic assessments for PAYE-only earners |
| 7 July 2026 | IR3 self-filing deadline |
| 7 February 2027 | Terminal tax due (or 7 April with tax agent EOT) |
| 31 March 2027 | IR3 deadline if filing through a registered tax agent |
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Frequently asked questions
What's the difference between PAYE and IR3?
PAYE is the system your employer uses to deduct income tax (and ACC, KiwiSaver, student loan) from each pay period and forward it to IRD. IR3 is the individual income tax return you file at year-end if your situation isn't fully covered by PAYE — for example, you have rental income, self-employment income, or overseas income.
Do I need to file an IR3 if I only earn salary or wages?
No. IRD automatically assesses most salary, wage, interest, and dividend earners by late May. You'll see the result in myIR. You don't need to lift a finger unless something is wrong.
When must I file an IR3?
You must file an IR3 if you had any of: self-employment or business income, rental income, overseas income over $200, partnership or look-through company income, trust beneficiary income, shareholder-employee salary, schedular payments, or a property sale caught by the bright-line rule.
When is the IR3 due for the 2025-26 tax year?
The 2025-26 IR3 (covering 1 April 2025 – 31 March 2026) is due on 7 July 2026 if you file yourself in myIR. If you file through a registered tax agent with an extension of time (EOT), the deadline extends to 31 March 2027.
Can I choose to file an IR3 even if I don't have to?
Yes. Voluntary filing is useful for claiming the donation tax credit (33.33% rebate via IR526), correcting a prior-year error, or claiming a deduction IRD can't see. You can also amend a prior-year IR3 in myIR for up to four years.
What happens if I should have filed but didn't?
IRD may issue a default assessment (usually higher than your actual liability), a late-filing penalty starting at $50 per month (max $300), and use-of-money interest from the terminal-tax date (7 February). Filing — even late — almost always beats ignoring it.
How does PAYE handle my ACC earner's levy?
PAYE includes the 1.67% ACC earner's levy automatically (capped at $152,790 for 2025-26). You don't pay ACC separately as an employee. Sole traders pay ACC ClassicCover and CoverPlus as part of their year-end self-employment reconciliation, not via PAYE.
Can my situation switch from PAYE-only to IR3-required mid-year?
Yes. Common triggers: starting a side hustle (self-employment), buying a rental property, selling property within the bright-line window, receiving an overseas dividend, or being notified by IRD. If you cross the line during the year, you must file an IR3 at year-end.