We know that figuring out taxes can be daunting for business owners, so we have put together this guide on some of the main types of taxes and levies in New Zealand so you can familiarise yourself with them.
In New Zealand, you must contribute a portion of any income you earn to the Inland Revenue Department (IRD), regardless of your employment status. This includes whether you’re a permanent employee, contractor, casual employee, or sole trader.
Businesses, by law, are required to pay a % of their profits as income tax, using the formula below:
Total revenue – income related expenses = Profit
Profit x IRD% = Income Tax
Provisional tax is simply a different method of paying income tax.
Provisional tax allows you to pay equal instalments during the coming year, rather than being met with a large income tax bill at the end of the financial year. This usually applies in the second year of trading and is often applicable if your previous year’s income tax exceeded $5000.
The IRD has various options for provisional tax and your local SBA will assist and notify you regarding the necessity of provisional tax payment.
If your income is over $60,000 for the year then you are required to register for GST. If you believe your earnings over the next 12 months will exceed $60,000, you will need to register as soon as possible to avoid an unexpected tax bill.
Registering for GST is optional if your annual revenue is less than $60,000, although there are advantages to registering below this threshold. Upon registering for GST, you gain the ability to claim GST incurred on your business-related expenses.
In the event that your business is enrolled for GST (goods and services tax) in New Zealand, you will need to include an additional 15% onto your charges. This can be offset with the GST charged to you on your expenses. The net amount is then paid to the IRD. You are essentially collecting this tax on their behalf.
PAYE tax, short for ‘pay as you earn’, is a type of tax business owners will need to pay to the IRD on behalf of their wage or salary-earning employees. This involves deducting tax from an employee’s pay according to their income and tax code, and paying this to the IRD each payday.
Kiwisaver contributions comprise two elements:
Employee Kiwisaver KSE – Employee contribution based on pre-tax earnings, and
Employer Kiwisaver KSR (which includes an employer superannuation contribution tax (ESCT).
KiwiSaver is paid to a kiwisaver fund on behalf of the employee. This is a compulsory superannuation savings account. The fund receives investment earnings, like interest and dividends, which are taxed. Withdrawals from KiwiSaver are not taxed.
ACC collects three levies to fund injury claims and support injury prevention in New Zealand. These levies are known as the work levy, earners’ levy, and working safer levy. The levies you pay are determined by your earnings and occupation. Sole traders need to pay all three levies, while employers will cover the work levy and working safer levy, deducting only the earners’ levy from each employee’s pay on behalf of the Inland Revenue.
Fringe benefit tax
Fringe benefit tax (FBT) comes into play when a business offers a personal advantage or perks to an employee or a shareholder-employee, and this benefit hasn’t undergone prior taxation. This covers employee benefits like gym memberships, insurance premiums, staff loans or staff discounts.
Need help figuring out what tax you or your small business needs to pay? Get in touch with your local SBA to have a chat today – we are here to help.