Whether you’re self-employed, a contractor, or running a small business, knowing the key tax types and levies can simplify your financial management. Gain this knowledge to make informed decisions, ensure compliance, and save time and effort, whether you use accounting software or outsource to experts.
The taxes you’re required to pay depend on your earnings, business structure, and whether or not you have employees. You may not have to pay all the different taxes, and some taxes will be paid by your business or collected and passed on behalf of your employees.
In New Zealand, income tax is mandatory for all individuals, businesses, contractors, and self-employed individuals who earn money. Taxable income can be obtained from several sources, such as wages, salary, profits, dividends, and interest payments.
As a sole trader, you must file an individual income tax return (IR3).
If you’re in a partnership, each partner must file their return, and your business must file two income tax returns (IR7).
In the case of a company, your business must file a company income tax return (IR4).
If you’re uncertain about your registration status, you can seek clarification from Inland Revenue.
In addition, you must provide either a copy of your business’s financial records or a summary of your income and expenses (IR10). You may file your returns online by creating a myIR account or downloading the necessary forms.
Provisional tax and income tax refer to the same tax. Provisional tax is just a method of pre-paying your yearly tax bill through several instalments. The Inland Revenue will notify you if you are required to pay this way.
Schedular payments refer to the tax deducted at source from an individual’s pay. This helps to reduce any potential end-of-year tax bills.
Under new tax legislation, schedular payment rules have been extended to include all contractors. Consequently, many contractors may now opt to have tax deducted from their pay, provided the payer agrees. However, those who are employed and paid through a recruitment agency or other labour-hire business must have tax deducted.
Contractors have the flexibility to choose the tax deduction rate. New Zealand tax residents can choose any rate between 10% and 100%.
Income and provisional tax
Law change: Contractors and tax
Most products and services in New Zealand are subject to Goods and Services Tax (GST), which is added to their price. If you’re registered for GST, you may claim back the GST you paid on business-related purchases of goods and services. Additionally, you must charge GST (15%) on your sales, which involves collecting it on behalf of the government.
Once your projected earnings for 12 months exceed $60,000, you must register for GST and file regular GST returns. The frequency of returns is determined by your income.
12-month period income: Below $500,000 – You can file GST returns monthly, every two months, or every six months.
12-month period income: $500,000 – $24 million – You can file GST returns monthly or every two months.
12-month period income: $24 million and over – You must file GST returns monthly.
It’s your decision to register for GST if you anticipate a low turnover. Voluntary registration, however, may have its perks, such as the potential to claim a GST refund. This is particularly relevant if you have paid GST but your income is minimal, as you may be eligible for a refund.
If you are using accounting software to manage your business finances, you may be able to file your GST returns directly through the software. Your software provider can confirm if this feature is available within their package. Alternatively, you can utilize Inland Revenue’s myIR secure online service to file your returns and pay GST electronically.
The Accident Compensation Corporation (ACC) levies are utilized to finance injury claims for all New Zealand residents.
As a self-employed individual or small business owner, you’re required to pay an ACC Work levy annually. This levy is directed towards funding ACC claims associated with work-related injuries.
Additionally, you’re responsible for deducting your employees’ ACC Earners’ levy from their wages, which funds claims for non-work-related injuries.
PAYE
PAYE, also known as “pay as you earn,” refers to the tax deducted from your employee’s wages or salaries. This tax is subtracted before you pay your workers, and you are responsible for remitting it to the Inland Revenue on their behalf each month.
ESCT, is the tax amount that you’re required to withhold from the cash contributions made to your employees’ superannuation accounts, including KiwiSaver. The rate of ESCT to be deducted may differ for each employee.
As an employer with staff, you have the option to provide allowances to cover expenses such as accommodation, meals, and clothing, including uniforms and safety gear. While some of these allowances are taxable and subject to PAYE deductions, others may be tax-free.
Fringe benefit tax
- work vehicles available for personal use
- subsidies on gym memberships or insurance
- discounted goods and services
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salary and wages
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cash bonuses
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employee allowances
Although not classified as taxes, there are other deductions that may be taken from your employee’s wages or salary during payroll. These deductions include KiwiSaver, student loans, and, if instructed by Inland Revenue, child support.
Additionally, employees may request you to make voluntary payments on their behalf, such as donations to a charity.
When you engage in the sale of goods or services to other countries, regardless of whether you consider yourself an exporter or not, you become subject to different tax regulations.
Taxes you will and won’t have to pay
The application of GST varies for goods and certain services.
In the case of exports, GST operates differently. When you export goods or some services, GST is not applicable as these supplies are considered zero-rated. Despite this, it is still necessary to report the zero-rated GST on your GST return.
Find out about zero-rated supplies — Inland Revenue
Another instance where GST operates differently is when your customer exports your goods within 28 days. If this condition is met, you are not required to pay GST, even if your customer is located in New Zealand. However, other criteria must also be fulfilled. As with exports, you are still obligated to report the zero-rated GST in your GST return.
GST and exported goods — Inland Revenue
When exporting to another country, you may be subject to import taxes, which are taxes imposed by the country you are exporting to. In addition, you may be required to pay an excise duty, which is a tax on products such as alcohol, fuel, and tobacco.
Excise taxes — New Zealand Customs
It is also essential to understand transfer pricing and how to assign costs when one team in a country performs work for a team in a different country. The costs incurred will have an impact on the taxes you are required to pay in both countries.
Transfer pricing — Inland Revenue
It’s generally recommended to pay taxes in New Zealand instead of overseas, if possible. Paying taxes overseas can be complex and more expensive, and may require you to meet additional compliance requirements and report on your business performance.
However, whether or not you’re required to pay taxes overseas depends on factors such as the arrangements between countries and your business structure. If you’re doing business in the US, it’s important to check the tax rules for the specific state you’re operating in, as they can vary.
New Zealand has established double taxation agreements with numerous nations, including Australia, which ensures that income is only subject to taxation in one country. This agreement prevents individuals and businesses from being taxed twice.
It is New Zealand’s preference that companies pay their taxes within the country.
Double tax agreements — Inland Revenue
When you have staff and contractors in a foreign country, you will likely have to pay various taxes there, such as employment tax, superannuation, and fringe benefits tax. Additionally, if you are a sole trader residing in another country for more than a few months, you may also be obligated to pay taxes in that country.
If you need help, contact us.
