Tax and Business Owners in New Zealand

Articles > Tax and Business Owners in New Zealand

Everyone who receives an income in New Zealand has to pay tax. This includes the self-employed, businesses and contractors. Every business in New Zealand pays income tax on their net profit every tax year. Although the tax year runs from 1st April until 31st March each year, it is possible to get this timeframe changed by applying to the IRD. Note, the corporate tax rate in in New Zealand is a flat 28%.

IRD Number
Every business organisation needs an IRD number. If you’re a sole trader, you can use your personal IRD number. Companies and partnerships need their own IRD number which can be applied for through the Inland Revenue Department.

You’ll need a company IRD number for the following if you are: –

  • Setting up a company, partnership, estate, trust, club, society, superannuation scheme or Maori authority
  • An employer
  • Selling goods and services
  • Buying, selling or transferring property in New Zealand
  • In the property rental business

Tax Returns that need to be Filed

  • Sole Trader – IR3
  • Partnership – IR7
  • Company – IR4

Paying Income Tax on Business’ Net Profit
Up until April 2018, New Zealand businesses paid provisional tax each year. In April, a ‘Pay-as-you-earn’ method of paying tax was introduced for small businesses, sole traders and contactors – the Accounting Income Method (AIM).

Accounting Income Method
AIM is ideal for new businesses, and those that have a seasonal or irregular income. It takes the guesswork out of paying tax. AIM is calculated through an IRD approved accounting software – Xero, MYOB or Reckon APS. Payments are made monthly or bi-monthly. If the company is registered for GST, then payments are made in accordance with the filing of their GST return. There are several criteria which have to be met before using the AIM system of paying these. These are available on the IRD’s website.

Provisional Tax: –

  • First Year of Operation

In your first year of business, you can opt to pay your tax at the end of the tax year (31st March) or, if you choose to soften the blow, you can make voluntary payments throughout the year.

  • Second Year Onwards

From the second year onwards, you’ll pay Provisional Tax. You can pay using the following methods: –

  • AIM (see above)
  • Standard – this amount will be based on the previous year’s income, plus a percentage increase
  • Estimation – you can estimate what your income will be for the tax year. If you earn more then you will need to make an extra payment (Terminal Tax); if you’ve earned less you can apply for a refund or use the money as a credit for the forthcoming year’s tax bill.
  • Ratio option

It’s important to note that Provisional Tax is only paid if your tax for the previous year is over $2,500.

ACC Levies (Accident Compensation Corporation)
These levies cover accidents in the workplace. Even if you’re self-employed and the only person working for your company, you still have to pay ACC levies. The amount payable varies depending on the type of industry you’re involved in and the amount of money earned by you and your staff.

Goods and Services Tax (GST)
Companies must register for GST if their income or turnover is, or estimated to be, over $60,000 per annum. You then add 15% to all your goods and services. GST returns are filed every two months for medium to large businesses and every 6 months for small businesses.

Taxes – Employees

As an employer, you deduct each employees tax before paying them, and then pay the Inland Revenue on their behalf.

ESCT (Employer Superannuation Contribution Tax)
Employers pay an employer contribution to any superannuation scheme their employees belong to.

Employee Allowances
Some allowances are taxable via PAYE. Allowances include things like accommodation, uniforms, safety equipment etc.

Fringe Benefit Tax
FBT is applied to cars for personal use, subsidies on gym membership, discounted goods and services etc.