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Introduction to taxes and levies
A basic understanding of key tax types and levies will make your life much easier, whether you’re self-employed or a contractor, or running a small business. That knowledge will be helpful whether you outsource that work to experts or use accounting software yourself.
You won't necessarily have to pay all the different taxes. What you pay and when you pay it depends on how much you earn, your business structure and whether or not you have employees.
You'll pay some taxes yourself and some for your business. And if you have employees, you'll collect and pass on some taxes on their behalf.
Income tax and provisional tax are the same tax.
Provisional tax is just a way of pre-paying your annual tax bill in several instalments. Inland Revenue will tell you if you need to pay in this way.
Income tax and provisional tax
Everyone who earns money in New Zealand must pay income tax, including businesses, contractors and the self-employed. Taxable income can come from a variety of sources, including wages, salary, profit, interest payments and dividends. If you're:
- a sole trader, you file an individual income tax return (IR3)
- in a partnership, each partner needs to file their own return and your business needs to file two income tax returns (IR7)
- set up as a company, your business needs to file a companies income tax return (IR4).
Ask Inland Revenue if you're not sure how you're registered.
You’ll also need to include either a copy of your business’s financial records, or a form summarising your income and expenses (IR10).
You can file your returns online by registering a myIR account, or download the forms you need.
Register a myIR account(external link) — Inland Revenue
Forms and guides(external link) — Inland Revenue
Income tax and provisional tax are the same tax — provisional tax is just a way of pre-paying your annual tax bill in several instalments. Inland Revenue will tell you if you are required to pay in this way.
Schedular payments
Schedular payments means having tax taken from your pay at source — it helps reduce any end-of-year tax bill you may have.
New tax laws have expanded schedular payment rules to all contractors. For many contractors, this means they can now choose to have tax deducted from their pay if the payer agrees. Those hired and paid through a recruitment agency or other labour hire business, must have tax deducted.
All contractors can pick the rate to have tax deducted at. New Zealand tax residents can pick any rate from 10% up to 100%.
Tax rate estimation tool for contractors(external link)— Inland Revenue
GST
Goods and services tax (GST) is added to the price of most products and services. If you’re GST registered, you can claim back the GST you pay on goods or services you buy for your business. You need to also charge GST (15%) on what you sell — this is collecting it on the government’s behalf.
As soon as you think you’ll earn more than $60,000 in 12 months, you have to register for GST. Once you’ve registered, you have to file regular GST returns. How often you need to file returns depends your income.
| Your income in any 12-month period | How often you complete GST returns |
|---|---|
| Below $500,000 | You can file GST returns monthly, every two months, or every six months |
| $500,000 - $24 million | You can file GST returns monthly or every two months |
| $24 million and over |
You must file GST returns monthly |
If you don't think you'll turn over that much, it's up to you whether or not to register. One benefit of voluntary registration is you might be able to claim a GST refund. For example, if you pay GST but don’t earn much, you may be able to get your money back.
If you’re using accounting software to manage your business finances, you might be able to file your GST returns through your software. Your software provider can confirm if the filing feature is available as part of their software package. Or, you can file returns and pay GST online using Inland Revenue’s myIR secure online service.
myIR(external link) — Inland Revenue
Find out what you know about tax types and levies for businesses and the self-employed. When you’re done, follow the links in the answers for more details.
ACC levies
ACC levies fund claims for injuries suffered by all New Zealanders.
If you’re self-employed or a small business owner, you’ll pay an ACC Work levy every year. It’s used to fund ACC claims for work-related injuries. You’re also responsible for deducting your employees’ ACC Earners’ levy from their wages. This is used to fund non-work related injuries.
Taxes when you have employees or contractors
PAYE
PAYE (pay as you earn) is tax deducted from your employees' wages or salaries. PAYE is deducted before you pay your employees, and you pay it to Inland Revenue on their behalf each month.
ESCT (employer superannuation contribution tax)
ESCT is the tax you take off the cash contributions you make to employees' superannuation accounts, including KiwiSaver. The rate of ESCT to deduct can vary for each staff member.
Employee allowances
If you have staff, you can choose to pay allowances to cover the cost of things like accommodation, meals and clothing, eg uniforms or safety gear. Some are taxable via PAYE and some are tax-free.
Fringe benefit tax
FBT applies to things like:
- work vehicles available for personal use
- subsidies on gym memberships or insurance
- discounted goods and services.
FBT doesn't apply to things already taxed for the employee, like:
- salary and wages
- cash bonuses
- employee allowances.
Other payroll deductions
These aren’t taxes, but are other payments that may be taken from your employees' wages or salary at payroll time. These include KiwiSaver, student loans and, if you’re told to do so by Inland Revenue, child support.
There may also be voluntary payments employees ask you to make on their behalf, like donations to a charity.
Taxes when you sell overseas
If you sell goods or services overseas, you’re an exporter, even if you don’t think of yourself as one. That means you may pay different taxes.
Taxes you will and won’t have to pay
GST works differently for goods and some services.
One tax that’s different when you export is GST. You don’t pay GST on exported goods or some exported services because exports are zero-rated supplies. But you still have to report the zero-rated GST in your GST return.
Find out about zero-rated supplies(external link) — Inland Revenue
GST also works differently if your customer exports your goods within 28 days.
You also don’t pay GST if your customer exports your goods within 28 days, even if your customer is in New Zealand. Other conditions also need to be met. You still have to report the zero-rated GST in your GST return.
GST and exported goods(external link) — Inland Revenue
You may need to pay an import tax in the country you’re exporting to.
You may have to pay excise duty.
An excise duty is a tax on alcohol, fuel and tobacco products.
Excise taxes(external link) — New Zealand Customs
Transfer pricing affects tax
You also need to know about transfer pricing: what costs to assign if a team in one country does something for a team in a different country. The costs will affect the tax you pay in the different countries.
Questions that exporters often ask(external link) — Inland Revenue
Transfer pricing(external link) — Inland Revenue
You may have to pay tax overseas
Pay tax in New Zealand instead of overseas as long as you can. Paying tax overseas can be complicated and cost you more. You may also have to report on your performance and meet other compliance requirements.
Whether you have to pay taxes overseas depends on things like arrangements between countries, and your business set-up. If you do business in the US, check the rules for the relevant state, as each state is different.
Arrangements between countries
New Zealand has double taxation agreements with many countries, including Australia. A double taxation agreement means income is only taxed in one country. You don’t have to pay tax twice.
New Zealand prefers companies to pay their tax here.
Double tax agreements(external link) — Inland Revenue
Your business set-up
If you have staff and contractors in another country, you’re likely to have to pay taxes there, like employment tax, superannuation and fringe benefit tax.
If you’re a sole trader who’s in another country for more than a few months, you may have to pay tax in that country.
