Reading time: 5 minutes

New Zealanders enjoy one of the simplest and most competitive tax systems in the world. As a business owner, this means that understanding the taxes you need to pay is relatively simple. Nonetheless, business taxation can be difficult to understand. As a business owner, it is critical that you understand your income tax obligations. This article provides a brief overview of the key taxes you need to be aware of as a business owner in New Zealand.

Income Tax

Income tax is a tax levied on an individual’s or business’ taxable income. The most common form of taxable income is salary or wages earned as an employee. If you operate a business as a sole trader or a partner in a partnership, your business income is included in your taxable income. If your business is structured as a company, its tax treatment will be different. Taxable income also includes income from investments, like dividends or interest, and rental income.

New Zealand has a progressive system of income taxation, meaning there are increasing rates for higher levels of income. New Zealand’s income tax rates are as follows:

Income

Rate of tax

$0-14,000

10.5%

$14,001-48,000

17.5%

$48,001-70,000

30%

$70,000+

33%

To illustrate how these brackets work in practice, consider this example. Simon earns an annual salary of $60,000 from his job as a retail store manager. He also operates a freelance photography business as a sole trader, from which he earns an additional $16,000. The interest earned on his savings account for the year was $400. Simon’s taxable income for the year is $76,400. Simon’s income tax liability for the year will be $16,132, as set out in the table below.

Income 

Income Tax Rate

Tax Paid

$0-14,000 ($14,000)

10.5%

$1,470

$14,000-48,000 ($34,000)

17.5%

$5,950

$48,000-70,000 ($22,000)

30%

$6,600

$70,000-76,400 ($6,400)

33%

$2,112

Total:

$16,132

Paying Your Employees’ Income Tax

As an employer, you withhold a certain percentage of your employees’ salaries each pay check, based on their individual income tax rate (see above), which you pay to Inland Revenue (IRD) on their behalf. This is known as ‘withholding taxes’ or pay as you earn (PAYE).

Company Tax

Companies pay a flat rate of 28% tax on their profits (income minus expenses). A company is its own separate legal entity and therefore files its own tax return separate to the individual tax return of any of its shareholders or directors. 

After a company has paid its taxes on any profits, it may choose to either retain the net profit or pay a dividend to its shareholders. If the company pays a dividend, shareholders receive a tax credit for the company tax already paid on the company’s profits, so their dividends are only taxed at a rate equal to the difference between their personal income tax rate and the 28% company tax rate. This is referred to as ‘imputation’ and prevents the unfair double taxation of company income.

If a company makes a loss during a financial year, it does not need to pay any income tax. One key advantage of a company is that it can ‘carry forward’ these losses to offset its income in a future tax year.

GST

Goods and services tax (GST) is a 15% tax consumers pay on the price of most goods and services (‘taxable supplies). The business selling the taxable supply charges and collects GST before passing it on to IRD. 

In order to charge GST, you need to register your business for it with IRD. If your business earns over $60,000 in a 12-month period, you must register it for GST. If you earn less than $60,000, you can still choose to register for GST. You register for GST through myIR by following the steps on IRD’s website

Once you have registered your business for GST, you need to regularly file GST returns to IRD. A GST return sets out the amount of GST your business collected from customers, subtracted by the amount of GST it paid for taxable supplies.

If your business collected more than it paid, you pay the balance to IRD. If your business paid more GST than it collected, you receive a GST refund from IRD. This is because GST is a tax on consumers, not businesses.

ESCT

Employer Superannuation Contribution Tax (ESCT) is a tax your business pays on the contributions it makes to an employee’s superannuation scheme (such as KiwiSaver). The tax rate levied on the contributions depends on the employee’s annual income. You can read more about how to calculate an employee’s annual income for the purposes of ESCT on IRD’s website.

Employee’s annual income

ESCT rate

$0-16,800

10.5%

$16,901-57,600

17.5%

$57,601-84,000

30%

$84,001+

33%

Key Takeaways

This article has provided a very brief overview of the key tax obligations for New Zealand businesses. It is always advisable to seek professional advice, and most businesses engage accountants and tax lawyers to assist with their tax obligations. If you have any questions about your business’ tax responsibilities in New Zealand, please contact LegalVision’s New Zealand corporate lawyers on 0800 005 570 or fill out the form on this page. 

FAQs

What Is Income Tax?

Income tax is a tax levied on an individual’s or business’ taxable income. The most common form of taxable income is salary or wages earned as an employee.

What Is GST?

Goods and services tax (GST) is a 15% tax consumers pay on the price of most goods and services (‘taxable supplies). The business selling the taxable supply charges and collects GST before passing it on to IRD. 

What Is Company Tax?

Companies pay a flat rate of 28% tax on their profits (income minus expenses). A company is its own separate legal entity and therefore files its own tax return separate to the individual tax return of any of its shareholders or directors.

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.

The majority of our clients are LVConnect members. By becoming a member, you can stay ahead of legal issues while staying on top of costs. From just $119 per week, get all your contracts sorted, trade marks registered and questions answered by experienced business lawyers.

Learn more about LVConnect

Need Legal Help? Get a Free Fixed-Fee Quote

If you would like to receive a free fixed-fee quote or get in touch with our team, fill out the form below.

Our Awards

  • 2019 Top 25 Startups - LinkedIn
  • 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Winner – Australasian Lawyer
  • 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2021 Law Firm of the Year - Australasian Law Awards
  • 2020 Law Firm of the Year Finalist - Australasian Law Awards