Income tax
Learn what income tax is, current New Zealand tax rates, and how to calculate and file it for your business.
Published Thursday 23 July 2026
Table of contents
Key takeaways
- New Zealand uses a progressive system: individuals pay rates from 10.5% to 39% across income brackets, and companies pay a flat 28% on taxable profit.
- You need to file an income tax return if you're a sole trader, contractor, or earn income beyond salary or wages. Returns are usually due by 7 July after the 31 March financial year end.
- To work out your tax, apply the right rate to each bracket as an individual, or multiply net profit by 28% as a company.
- Keep organised records like receipts, income statements, and depreciation details. Hold on to receipts for seven years, even if you don't file them.
Income tax definition
Income tax is a government levy on the earnings of individuals and businesses. In New Zealand, only the national government collects it, so there are no state or local income taxes.
The money collected funds public services and infrastructure, from healthcare and schools to roads. How much you pay, and when, depends on how much you earn and how your business is set up.
Income tax generally involves the same core actions for everyone.
- Submit a return that declares your taxable income
- Pay any tax owed on time to avoid fines or penalties
- Check when payment is due, since timing depends on your business structure and income
Types of income tax
Three main types of income tax apply in New Zealand, depending on your business structure and where your income comes from.
Personal income tax
Individuals pay tax on their personal income. The rate rises as your income goes up.
Business income tax for sole traders and partnerships
As a sole trader, you combine your business profit or loss with your other income and report it on your personal tax return. You then pay personal income tax on the total.
Partnerships usually file a separate business tax return. The tax office checks this against each partner's personal return.
Business income tax for companies
Companies pay tax on their net profit at a flat 28% rate, so the same rate applies no matter the profit. If you receive dividends or a salary from your company, you pay personal income tax on that income.
Income tax rates in New Zealand
New Zealand uses a progressive tax system for individuals, so your income is split into bands and each band is taxed at its own rate. Your marginal rate is the rate on your top band, not on your whole income.
For the current tax year, individual income tax rates are:
- 10.5% on income up to $15,600
- 17.5% on income from $15,601 to $53,500
- 30% on income from $53,501 to $78,100
- 33% on income from $78,101 to $180,000
- 39% on income over $180,000
Companies pay a flat 28% on their taxable profit. If you're a sole trader or in a partnership, your business profit is part of your personal income and is taxed at the individual rates above.
Rates can change from time to time, so check the official figures before you file:
How to calculate income tax
Income tax uses a simple formula: taxable income multiplied by the tax rate. For individuals, you pay different rates on different parts of your income, while for companies you pay the same rate on all taxable income.
Your marginal rate is the rate charged on your top band of income, while your effective or average rate is your total tax divided by your total income, which is always lower.
Example: flat-rate income tax calculation
Companies work out tax at one flat rate, as this example shows.
If your company has revenue of $240,000 and expenses of $140,000, you pay tax on the profit at the flat rate.
Your taxable income is revenue minus expenses: $240,000 minus $140,000 = $100,000. You then multiply $100,000 by the tax rate to find the tax due.
If your company pays you after-tax profits, you declare that income on your personal tax return.
Example: progressive income tax calculation
Individuals pay tax across several bands as their income rises. If you earn $70,000 in wages and make $30,000 in profit from your sole trader business, your total income of $100,000 falls into several tax brackets.
You would pay:
- 10.5% on the first $15,600
- 17.5% on income from $15,601 to $53,500
- 30% on income from $53,501 to $78,100
- 33% on income from $78,101 to $100,000
Common income tax calculations
Here's how the maths looks for a single income of $70,000, taxed at different rates for each part.
- the first $15,600 is taxed at 10.5% = $1,638
- the next portion, from $15,601 to $53,500, is taxed at 17.5% = $6,632.50
- the final portion, from $53,501 to $70,000, is taxed at 30% = $4,950
Your total tax is the sum of these amounts: $1,638 + $6,632.50 + $4,950 = $13,220.50.
When you need to file a tax return
For most people, if your only income is salary or wages, your employer handles this for you through Pay As You Earn (PAYE). You may not need to file a return at all.
You need to file an income tax return if you're a small business owner, sole trader, contractor, or earn other income such as rent. You usually file once a year, after the financial year ends on 31 March, and the deadline is 7 July. Tax agents may have more time.
Income tax is separate from GST, so if you're registered you'll file GST returns as well. You can learn how it works in our guide to GST.
What information businesses need to calculate income tax
To calculate business income tax, you'll need a few key details on hand.
- Financial statements: revenue and expenses from your income statement, or profit and loss
- Asset depreciation: depreciation claims for business-owned assets
- Tax credits: any credits that reduce your final tax bill
Good record keeping makes this far easier. Capture your transaction data, store digital receipts, and keep them for seven years, even if you don't file them with your return.
Make income tax simpler with Xero
Staying organised is the best way to make income tax less stressful. When your financial information sits in one place, you can see your earnings, track expenses, and understand your tax position in real time.
Xero brings your accounts together so you can spend less time on admin and more time running your business, and you can get one month free.
FAQs on income tax
Here are answers to some frequently asked questions about income tax for your small business.
How much tax do I pay on $70,000 in NZ?
On $70,000, you'd pay about $13,220.50 in tax for the year, leaving roughly $56,779.50 after tax. That works out to an average tax rate of around 19%.
Who pays the 39% tax rate in New Zealand?
The 39% rate applies to personal income over $180,000 a year. Only the portion of your income above that threshold is taxed at this top rate.
What is the difference between PAYE and income tax?
Income tax is the total tax you owe on your earnings. Pay As You Earn (PAYE) is how employers deduct that tax from your salary or wages as you're paid.
When do I need to pay provisional tax?
You generally pay provisional tax if you had more than $5,000 of residual tax to pay in your last return. Provisional tax spreads that bill across instalments during the year.
What is a tax code and why does it matter?
A tax code tells your employer how much PAYE to deduct from each pay. The wrong code can mean you overpay or underpay tax during the year.
Related Terms
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Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.