A basic understanding of taxes is important
A basic understanding of taxes matters when you’re in business, even if someone else manages your finances.
A basic understanding means you will:
- know what you have to pay – not just how much, but for which activities
- know when you need to pay – and be able to budget and forecast your cashflow more accurately
- be able to put aside money as you earn it – so you’re prepared when payment is due.
You will also know which records you may need to keep, for example:
- invoices and receipts
- records of salaries and wages
- records of petty cash and banking transactions
- vehicle logbooks.
GST
Goods and services tax (GST) is a 15% tax for buying and selling most products and services.
As soon as you think you’ll earn $60,000 or more in 12 months, you’ll have to register for GST, no matter what your business structure is.
Being registered for GST means:
- you must charge GST on your products and services — you’re collecting the tax for the government
- you can claim back GST you pay on what you buy
- you need to file regular GST returns, and pay what you collected or get a refund for GST you’ve paid.
Income tax and provisional tax
Everyone who earns money in New Zealand must pay income tax, whether you’re an individual or a business. What is taxable varies but includes salaries, wages and business profits.
You might pay income tax in advance, or as you go:
- If Inland Revenue tells you to pay income tax in advance and in instalments, this is called provisional tax.
- If you’re a contractor and income tax is taken from your pay at source (before you get paid), this is called a schedular payment. Making schedular payments along the way means a smaller tax bill at the end of the year.
ACC levies
All businesses pay ACC levies, which cover the cost of injuries at work. How much you pay will depend on:
- your type of business
- how much you pay your employees
- your claims history.
If you have employees, you’ll have to deduct a levy from their wages to cover injuries outside work.
Taxes when you have employees or contractors
If you have employees or contractors, you’ll have to deduct some taxes when you pay them. You then pass the money to the appropriate government agency, such as Inland Revenue.
Here are three common types of deductions:
- PAYE (pay as you earn) is income tax you deduct from your employees' wages or salaries.
- ESCT (employer superannuation contribution tax) is tax you deduct from your contribution to employees’ superannuation and KiwiSaver accounts.
- FBT (fringe benefit tax) is tax on employee benefits, like gym memberships.
What's next
Paying employees
Reducing your tax bill
Funding your business
Getting government grants
Business finance basics