A sole trader in New Zealand pays income tax on their net profit, which is what is left after business expenses, at the same rates as everyone else. You report that profit each year on an IR3 return, due by 7 July after the tax year ends (31 March), unless a tax agent files for you. Nobody deducts tax from your business income as you earn it, so the bill arrives as a lump unless you pay in instalments.
This guide explains each of those terms as it comes up, and works one example with round numbers.
What a sole trader is, and what that means for tax
A sole trader is a person who runs a business in their own name, with no company or partnership around it. Your business income is treated as your personal income. There is no separate business tax return. You are responsible for working out the tax, filing the return and paying what you owe.
Business.govt.nz puts it plainly: how much tax you owe depends on how much you earn, whether you also have a separate PAYE job, and what industry you work in. That is why you cannot simply set aside a fixed percentage of every payment and be done.
There are three kinds of tax and levy a sole trader needs to know about:
- income tax
- ACC levies (the accident insurance charges explained below)
- GST (goods and services tax)
Alongside those, you may also need to plan for student loan repayments, KiwiSaver contributions and the Independent Earner Tax Credit. Each gets a section below.
Why self-employed income is taxed differently
Inland Revenue's tax rates page explains the split. Some income is taxed before you receive it: salaries, wages, benefits and interest. Your employer or payer deducts the tax. Income from self-employment is not taxed before you get paid. You pay the tax at the end of the tax year, and the amount depends on your total income for the year.
The tax year runs from 1 April to 31 March. Your income from all sources for those twelve months is added up, and the rates below are applied to the total.
The income tax rates
New Zealand uses a progressive system. Your income is split into bands, called brackets, and each band has its own rate. You pay the higher rate only on the slice of income that falls inside that bracket, not on everything you earn. The brackets are the same for employees, business owners and sole traders.
The rates set out by Inland Revenue from 1 April 2025 are the same ones that apply for the 2026-27 tax year (1 April 2026 to 31 March 2027):
| Taxable income | Rate on that slice |
|---|---|
| $0 to $15,600 | 10.5% |
| $15,601 to $53,500 | 17.5% |
| $53,501 to $78,100 | 30% |
| $78,101 to $180,000 | 33% |
| $180,001 and over | 39% |
New Zealand has no tax-free threshold. You pay tax from the first dollar. Brackets and rates are set by government and can change, so check them again at the start of each tax year.
A worked example
Take a freelance designer who invoices $75,000 in the year and has $15,000 of genuine business expenses. Their taxable income is the difference: $60,000.
The tax on $60,000 is built up slice by slice:
- 10.5% of the first $15,600 is $1,638.00
- 17.5% of the next $37,900 (up to $53,500) is $6,632.50
- 30% of the remaining $6,500 is $1,950.00
The total income tax is $10,220.50, which is about 17% of the $60,000 taxable income.
Three things to notice. First, the designer does not pay 30% on the whole amount, only on the top $6,500. Second, the $15,000 of expenses came off before any tax was worked out, which is why claiming what you are entitled to matters. Third, this figure is income tax only. It leaves out ACC levies, any student loan repayment, tax credits and any tax already deducted from other income, all of which are covered below.
Registering and GST
Your business income is taxed through your IRD number, so you need one, and you will need a myIR account to file online. Beyond that, the registration steps for starting out depend on your circumstances, so check Inland Revenue's own guidance for the current process.
GST is a 15% tax on most goods and services sold in New Zealand. If you are registered, you add it to your prices, collect it from your customers and pass it on to Inland Revenue. It is not a cost to you.
The rule on registering is straightforward:
- You must register once your business turnover exceeds, or is expected to exceed, $60,000 in any 12-month period.
- Below that you may register voluntarily.
Turnover means your sales, not your profit. Note the words "expected to exceed": you do not wait until you have crossed the line if you can see that you are about to.
Once registered, you file GST returns monthly, two-monthly or six-monthly and can claim back the GST you pay on business purchases. Voluntary registration can suit you if you make significant purchases, because you recover the GST on them. The cost is that you must charge GST on your sales and file regular returns, which adds admin. Business.govt.nz gives a simple case: a $200 item becomes $230 once 15% GST is added.
If you are close to the threshold or unsure which way to go, that is a sensible moment to ask an accountant.
The IR3 return
The IR3 is the individual income tax return. It covers all your income, including self-employment, rental and investment income, and it is where you claim your business expenses and arrive at your final tax position for the year.
If you are a sole trader you must file an IR3 every year. That applies whether the business is your main income or a side activity next to a job. An automatic assessment from Inland Revenue, which is what many wage earners receive, is not enough once you have untaxed business income.
Most people file through myIR. You work through the sections for income and expenses, check the calculated tax against what you have already paid, and submit. In myIR, details of income that already had tax deducted are filled in automatically. A paper IR3 is possible, but Inland Revenue then sends your Summary of Income separately by post.
The IR10 summary
Along with your IR3 you may need to send an IR10, a short financial statements summary. It shows total income and total expenses in categories, your net profit or loss, and key balance sheet figures such as assets and liabilities. You still need to prepare a full set of accounts and keep them in case Inland Revenue asks, but you do not need to send them if you use the IR10. The totals must be accurate and properly categorised.
When income counts
Income is taxed in the year it is derived. On a cash basis that is when you receive it. On an accrual basis it is when you earn it. Which basis applies depends on the nature of your business, not on your preference. A professional selling only their own services can often use the cash basis; the accrual basis suits most other situations where income is earned.
If you make a loss
If your expenses are higher than your income, you have a business loss. It can be set against other income, such as wages or rent, to reduce your total taxable income. Any excess can be carried forward to the next year, and keeps carrying forward until it is used up.
Deadlines
| What | 2025-26 year | 2026-27 year |
|---|---|---|
| Tax year ends | 31 March 2026 | 31 March 2027 |
| IR3 due, filing yourself | 7 July 2026 | 7 July 2027 |
| IR3 due, with a tax agent's extension of time | 31 March 2027 | 31 March 2028 |
| Terminal tax due | 7 February 2027 | 7 February 2028 |
| Terminal tax due, with a tax agent | 7 April 2027 | 7 April 2028 |
A registered tax agent can file your return for you. Using one gives you extra time: the filing deadline moves from 7 July to 31 March the following year, and the payment deadline moves to 7 April. Note that this is a longer wait to pay, not just to file. If you have not used an agent before, engage one well before the deadline rather than in June.
Provisional tax and terminal tax
Two terms explain most of the cash-flow pain for new sole traders.
Provisional tax is a way of paying your income tax in instalments during the year, instead of in one lump after it. Terminal tax is the balance you owe after your provisional tax payments have been credited. If you paid nothing in advance, your terminal tax is the whole bill.
Who pays provisional tax
You are required to pay provisional tax if your residual income tax in the previous tax year was more than $5,000. Put simply, if you had more than $5,000 of tax to pay on your last return, you will usually be paying in instalments the next year.
The first-year trap
Under the standard, estimation and ratio options, no provisional tax is paid in your first year of self-employment. The result is that the first tax bill can be large and arrives all at once. Business.govt.nz adds that if you pay all of your first-year income tax before the 31 March year-end, you may qualify for a discount, and suggests asking an accountant how to do that. If you are in your first year, the practical answer is to put money aside from the first invoice.
The four methods
There are four ways of working out provisional tax:
- Standard method: based on your previous year's tax, with an uplift applied.
- Estimation method: you estimate this year's income and pay on that estimate.
- Ratio method: available if you are GST-registered; provisional tax is a percentage of your GST-period sales.
- Accounting income method (AIM): your accounting software works out provisional tax from your actual year-to-date income each period.
Each method has its own payment dates and requirements. Under the standard method, provisional tax is typically paid in three instalments. For the 2026-27 year with a March balance date those are 28 August 2026, 15 January 2027 and 7 May 2027. Inland Revenue's calendar also lists 15 January as a due date for March balance dates on the standard, estimation or ratio options. Your tax agent can confirm the exact dates for your situation.
If you are choosing between methods, or want to know whether your instalments can be smoothed, our guide to tax pooling and provisional tax covers the options.
What you can claim
To be deductible, an expense must relate directly to earning your business income. Claiming it lowers your taxable income, so you pay less tax. Common categories for sole traders include:
| Category | What the rule is |
|---|---|
| Home office | A share of rent or mortgage interest, power, internet and phone, based on the area of your home used for business (and the time it is used). A square metre rate is an alternative |
| Vehicle | The business share of costs by logbook, using Inland Revenue's kilometre rates or actual costs; if you have no logbook, 25% of running costs |
| Equipment and tools | Items costing $1,000 or less are deducted in full in the year you buy them |
| Depreciation | Assets over $1,000 are depreciated at set rates rather than deducted at once |
| Professional fees | Accounting, tax agent, legal and consulting fees for the business |
| Insurance | Business-related premiums, such as public liability and professional indemnity |
| Software, marketing, training | Business subscriptions, advertising, a website, and training directly related to the current business |
| Interest and bank fees | Interest on business borrowings (not private debt) and business account fees |
| Subcontractors | Amounts paid to subcontractors for work |
| Business travel | Flights, accommodation and meals while travelling for business away from your usual place of work |
| Stock | For a business selling goods, stock bought for resale, adjusted for opening and closing stock |
The figures for the square metre rate and the kilometre rate change, so take the current rates from Inland Revenue rather than from a guide.
Phone and internet
If you work from home, the home-office method above includes a portion of your phone and internet costs. The principle behind it applies to everything: where a cost is partly private and partly business, you split it on a reasonable basis and claim only the business share.
What you cannot claim
Costs of a private or domestic nature are not deductible. Meals, holidays and personal purchases dressed up as business costs are among the most common reasons for an audit. Interest on private debt is not deductible either. Inland Revenue may select a business for audit when its returns show an unusual pattern or one that does not fit industry norms, and in an audit it can check your records, including your private bank accounts, against the income you declared.
Keep a receipt or invoice for every expense you claim, and a logbook if you claim vehicle costs.
ACC levies
ACC is New Zealand's accident compensation scheme. As a new sole trader you get ACC personal injury cover from day one, under a product called CoverPlus. What you pay depends on the type of work you do and your liable earnings. You can choose CoverPlus Extra, which gives you more control over how much of your income ACC covers and can lower your levies.
Three levies are collected:
- The Earners' levy, a flat rate per $100 of liable income (excluding GST).
- The Working Safer levy, also a flat rate per $100 of liable income.
- The Work levy, based on the kind of business you run. The riskier the work, the higher the levy.
ACC uses the income you report on your IR3 to calculate the levies and invoices you directly, so you do not register separately. Your first invoice arrives after the end of your first year in business. After that you are invoiced once a year, usually in July or August. ACC has an estimation tool that shows how much to set aside. Many people forget this bill because it does not come from Inland Revenue, so include it when you plan your cash flow.
Other money that comes out of your income
Student loan repayments
Student loan repayments are not a tax, but Inland Revenue collects them. They are 12% of every dollar you earn above the repayment threshold, which is $24,128 for the 2026 tax year (1 April 2025 to 31 March 2026). If you are self-employed, you pay your own repayments, which you can do with your year-end tax. Voluntary payments through the year help to spread the load.
For example, someone with $40,000 of self-employed income and nothing else subtracts $24,128 to get $15,872, then takes 12%. The year-end repayment is $1,904.64.
KiwiSaver
Contributing at least $1,042.86 to KiwiSaver in a year earns the full government contribution of $260.72.
Independent Earner Tax Credit
The Independent Earner Tax Credit (IETC) is open to sole traders and contractors. It is worth up to $520 a year for annual income between $24,000 and $70,000, reducing by 13 cents for every dollar earned over $66,000. You claim it on your IR3.
Records
Keeping records is a legal requirement. Inland Revenue requires you to keep them for at least seven years from the end of the tax year they relate to. They should cover all income received (invoices, sales records and bank statements) and every expense you claim.
Inland Revenue says it can be helpful to keep separate bank accounts for your business. If you use one account for both, you need to show clearly the personal money you take out and put in. Mixing the two makes it hard to see what is business income and what is not, and cash payments for your work are income that must go in your return like any other.
What it costs to get it wrong
Late filing and late payment each carry their own penalties. On the payment side, Inland Revenue charges an initial penalty of 1% the day after the due date, then a further 4% on the seventh day. For income tax, use-of-money interest also runs from the day after the due date while the tax remains unpaid.
Two practical points follow:
- File on time even if you cannot pay. Filing late is a separate penalty, and a late IR3 can attract one unless you have an extension of time or a valid reason.
- If you cannot pay by the due date, an instalment arrangement is an option. Ask early, before the penalties build.
If you already owe and are trying to get finance, our guide to business finance when you owe Inland Revenue covers what lenders look at.
When to bring in an accountant
You can file your IR3 yourself through myIR at no cost, and many sole traders with simple affairs do. An accountant or tax agent is worth it when:
- your income comes from several sources, such as wages, rental income and the business
- you are unsure whether you are over the GST threshold
- you want the longer filing and payment dates a tax agent provides
- you want help finding deductions you may have missed
- you are in your first year and need a plan for the first tax bill
Business.govt.nz also points to online accounting software and bookkeepers as alternatives to managing everything alone.
Whether it makes sense to move from sole trader to a company depends on your income, your risks and your plans. The tax result differs from case to case, so take advice on your own numbers before you decide.
A short checklist
- Get an IRD number and a myIR account.
- Open a separate business bank account.
- Put tax money aside from the first invoice, including for ACC and any student loan.
- Watch your turnover against the $60,000 GST line, including what you expect to earn.
- Keep every receipt and a logbook if you claim a vehicle.
- File your IR3 by 7 July, or arrange a tax agent in good time.
- Keep records for seven years.
Frequently Asked Questions
Do I have to file a tax return if I only freelance on the side?
Yes. A sole trader must file an IR3 every year, whether the business is the main income or a side activity next to a job.
Is there a tax-free amount for sole traders?
No. New Zealand has no tax-free threshold. The first $15,600 is taxed at 10.5%.
When do I have to register for GST?
When your turnover exceeds, or is expected to exceed, $60,000 in any 12-month period. Below that you can register voluntarily, which is worth considering if you make significant purchases.
Why is my first tax bill so large?
Under the standard, estimation and ratio options no provisional tax is paid in your first year, so the whole bill falls due as terminal tax. Setting money aside from the start, or asking an accountant about paying first-year tax before 31 March, spreads the cost.
How long should I keep my records?
At least seven years from the end of the tax year they relate to.