How Much Tax Do I Pay as a Sole Trader in NZ?
A plain-English guide to sole trader tax in New Zealand, using 2026-27 rates, real numbers, and a worked Jamie example.
Current for the 2026–27 tax year | Rates confirmed against IRD
Running your own business in New Zealand is great — until tax time hits and you realise nobody took care of it for you.
When you work for someone else, your employer handles everything. Tax comes out before you see a cent. As a sole trader, that's your job now. Nobody's doing it for you.
This guide walks through exactly how tax works for sole traders in New Zealand, with real numbers and a real example. By the end you'll know what you owe, when you pay it, and how much to set aside.
Meet Jamie — a self-employed electrician
Jamie quit his job at an electrical company two years ago and went out on his own. He works across residential and commercial jobs in Hamilton. Last year he invoiced $130,000 and spent $18,000 on tools, a van, fuel, and his accountant. That leaves him with $112,000 taxable profit.
We'll use Jamie's numbers throughout this guide.
Step one — work out your taxable profit
As a sole trader you don't pay tax on everything that comes into your bank account. You pay tax on your profit — what's left after you subtract your legitimate business expenses.
Common deductible expenses include:
- Tools and equipment used for work
- Vehicle costs (the business portion)
- Fuel and mileage
- Phone and internet (the work portion)
- Accounting and bookkeeping fees
- Work-related training and courses
- Home office costs if you work from home
- Business insurance
- Advertising and marketing
Personal spending doesn't count. If you bought a new TV for the living room, that's not a business expense. If your expense is partly personal and partly work — like your phone — you can only claim the business portion.
Jamie's $130,000 minus $18,000 expenses = $112,000 taxable profit.
Step two — calculate income tax on your profit
Sole traders pay income tax using the same personal tax brackets as employees. The brackets for 2026–27 are:
| Income | Tax rate |
|---|---|
| $0 – $15,600 | 10.5% |
| $15,601 – $53,500 | 17.5% |
| $53,501 – $78,100 | 30% |
| $78,101 – $180,000 | 33% |
| Over $180,000 | 39% |
Jamie earns $112,000 taxable profit. Here's his income tax:
- First $15,600 at 10.5% = $1,638
- $15,601 to $53,500 at 17.5% = $6,633
- $53,501 to $78,100 at 30% = $7,380
- $78,101 to $112,000 at 33% = $11,187
- Total income tax = $26,838
His effective tax rate is 24% — not 33%, even though his income sits in the 33% bracket. He only pays 33% on the slice of income above $78,100.
Step three — add ACC on top
ACC isn't optional. Everyone in New Zealand pays it, including sole traders.
From 1 April 2026, the ACC earner's levy is 1.75% on income up to $156,641. But as a sole trader, you also pay a work levy on top of that. The work levy varies depending on what type of work you do — electricians, builders, and tradies generally pay more than someone who works at a desk.
IRD collects the earner's levy automatically when you file your tax return. ACC invoices you separately for the work levy at the end of the year.
For planning purposes, a combined ACC rate of around 2.0% to 2.5% of your taxable income is a reasonable starting estimate for most sole traders. Use a higher number if your work is physical.
Jamie uses 2.0% as a starting estimate.
$112,000 x 2.0% = $2,240 ACC estimate
Your actual ACC invoice will differ — it depends on your industry classification and the cover you hold. The ACC Levy Calculator gives a clearer estimate.
Step four — GST if your turnover is over $60,000
This is the one people forget.
If your total turnover (the money coming in, before expenses) goes over $60,000 in a 12-month period, you must register for GST with IRD. Once registered you charge 15% GST on top of your invoices and pay that amount to IRD every two months.
Jamie invoiced $130,000 so he's well above the threshold and is already GST-registered.
Important: GST is not your money. When Jamie invoices $100 + $15 GST = $115, the $15 belongs to IRD. A lot of new sole traders spend it and then panic when the GST return comes. Keep it separate from day one.
If you're not yet over $60,000 but heading that way, you can register early. Some clients and contractors prefer working with GST-registered businesses.
Use the GST Calculator to work out your GST position.
Step five — provisional tax once your bill gets big enough
When you're an employee, your employer pays your tax a little bit every payday. When you're self-employed, nobody does that. So once your tax bill gets large enough, IRD asks you to pay in instalments throughout the year instead of one big payment at the end.
This is called provisional tax.
It kicks in once your residual income tax (RIT) — roughly, your tax bill after any credits — is $5,000 or more.
Jamie's tax bill is $26,838. He's well over the threshold, so he pays provisional tax in three instalments during the year:
- 28 August — first instalment
- 15 January — second instalment
- 7 May — third instalment
The standard method calculates each payment as 105% of last year's tax bill divided by three. So if Jamie paid $25,000 last year, his three provisional payments this year are each about $8,750.
If your income drops compared to last year, you can estimate lower. But if you underestimate too much, IRD charges use-of-money interest — currently 8.97% per year on the shortfall. That adds up fast.
Your first year is different. In your first year as a sole trader, you probably won't pay provisional tax during the year. Instead, you'll pay your full tax bill after you file your IR3 return. That lump sum can be a shock if you haven't saved for it. See the savings rule below.
The savings rule — do this from day one
This is the single most important thing in this guide.
Every time a payment lands in your bank account, transfer a percentage straight into a separate savings account and don't touch it. That's your tax account.
For most sole traders, 25–30% of every payment is a safe starting point. If you earn more and sit in the 33% bracket like Jamie, go closer to 30–33%.
Jamie earns $112,000 and owes about $26,838 in income tax plus around $2,240 in ACC. That's $29,078 total — about 26% of his $112,000 taxable profit.
If he'd been setting aside 28% of every payment from the start, he'd have roughly $36,400 saved — more than enough to cover his tax and ACC with money left over.
The people who get into tax trouble as sole traders are almost always the ones who didn't set money aside. Not because they earned too much, but because they spent the tax money before IRD asked for it.
Filing your tax return — the IR3
Every sole trader in New Zealand files an IR3 individual income tax return each year.
The tax year runs from 1 April to 31 March. Your IR3 is due by 7 July after the tax year ends. If you use a tax agent or accountant, you usually get an extension — often to March of the following year.
Your IR3 covers:
- Your total business income
- Your total business expenses
- Your taxable profit
- Any other income (rental, interest, salary from a part-time job)
- Tax credits you're entitled to
If you're GST-registered, your GST returns are separate from your IR3 and are filed every two months.
Jamie's full tax picture for the year
Here's everything Jamie owes in one place:
| What | Amount |
|---|---|
| Income tax | $26,838 |
| ACC estimate | $2,240 |
| Total tax and levies | $29,078 |
| Taxable profit | $112,000 |
| Keep after tax and ACC | $82,922 |
On top of that, Jamie pays GST but that money was never his — he collected it from clients and passes it straight to IRD.
What if you also work part-time as an employee?
Some people run a small business on the side while still employed part-time. That's fine — but both income sources get added together when working out your total tax.
Say you earn $30,000 from a part-time job (PAYE deducted by your employer) and $40,000 profit from your business. IRD looks at your total income of $70,000 and works out the tax on the whole amount.
Your employer's PAYE covers the first $30,000. You're responsible for the tax on the extra $40,000. This often catches people out because the PAYE on $30,000 doesn't account for the higher brackets you hit when the business income is added on top.
Common questions
Do I need an accountant?
You don't have to use one, but most sole traders find a good accountant pays for itself. They find expenses you missed, make sure your GST is right, and help you avoid the kind of errors that attract IRD attention. A basic sole trader tax return typically costs between $400 and $1,200 depending on complexity.
What if I can't pay my tax bill?
Call IRD before the due date — don't ignore it. IRD is generally willing to set up a payment plan. The interest and late penalties are much more manageable if you reach out early.
Can I pay myself a salary as a sole trader?
No. As a sole trader you and your business are the same legal entity. There's no salary — you just take drawings from the business. Your taxable income is your net profit, not what you paid yourself.
What records do I need to keep?
IRD requires you to keep records for at least seven years. That means all invoices, receipts, bank statements, and anything that supports the expenses you've claimed.
What's terminal tax?
Terminal tax is the difference between your provisional tax payments and your actual tax bill for the year. If you underpaid during the year, you pay the shortfall as terminal tax. If you overpaid, you get a refund.
Work out your numbers
The easiest way to see your full tax picture as a sole trader is to run your own numbers through the calculator.
Use the TaxPop Sole Trader & Self-Employed Tax Calculator — enter your income and expenses and it breaks down your income tax, ACC, GST, and estimated take-home for the year.
Other tools that help:
- Provisional Tax Calculator — work out your three instalment amounts
- GST Calculator — check your GST position
- Income Tax Calculator — check income tax on your profit
Tax rates in this guide are sourced from Inland Revenue (IRD) and are current for the 2026–27 tax year. ACC estimates are for planning purposes only — your actual ACC invoice will depend on your industry classification. This guide is general information only and is not tax advice. For advice specific to your situation, talk to a registered NZ tax professional.