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Introduction to taxes and levies

When you're self-employed, a contractor or running a small business, a basic understanding of key tax types and levies will make your life much easier — even if you outsource all or most of the work to a tax or bookkeeping expert.

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

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 files an individual income tax return (IR3)
  • in a partnership, each partner needs to file their own return and your business needs to do a partnership income tax return (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 all your returns online, or download the forms you need from the Inland Revenue website (external link) .

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.

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 per cent up to 100 per cent.

Tax rate estimation tool for contractors (external link) — Inland Revenue

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 can 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. You can choose to file GST returns monthly, every two months, or every six months.

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, eg if you have a lot of expenses but not much income. Once you've registered, you have to complete regular GST returns.

GST can now be paid online using Inland Revenue’s myGST service, a new section of myIR.

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 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

PAYE

PAYE (pay as you earn) is tax deducted from your employees' wages or salary. 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.

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