Sole trader tax in NZ: GST, deductions and due dates

Published Tuesday 21 April 2026

Table of contents

• What taxes do sole traders pay in New Zealand?
• Your tax obligations as a sole trader
• Sole trader income tax
• GST registration for sole traders
• ACC levies for sole traders
• Tax deductions and allowable expenses
• What is provisional tax?
• Filing your sole trader tax return
• Sole trader vs company tax differences
• Managing sole trader tax
• Streamline your sole trader tax with Xero
• FAQs on sole trader tax

Key takeaways

• Register for GST as soon as your business turnover reaches or is expected to reach $60,000 in any 12-month period, so you can charge 15% GST on sales and claim it back on business expenses.
• Claim all allowable deductions — including home office costs, vehicle expenses, equipment, and professional fees — to reduce your taxable income and lower your tax bill.
• Set aside money each month from your first year in business to cover your tax bill, since your second year requires paying both your first year's tax and provisional tax instalments at the same time.
• Choose the right provisional tax method for your situation — standard, estimate, ratio, or Accounting Income Method (AIM) — to match your payments to your actual income and avoid interest charges.

What taxes do sole traders pay in New Zealand?

Sole traders in New Zealand pay three main taxes: income tax on business profits, GST if your turnover was at least $60,000 in the last 12 months, and ACC levies for injury cover. Understanding these from the start makes managing your finances much simpler.

• Income tax on your business profits
• Goods and Services Tax (GST), which Inland Revenue states you must register for if you earn over $60,000 a year
• ACC levies to cover you for injuries

This guide walks you through each of these so you know what to expect.

Your tax obligations as a sole trader

Staying on top of your tax duties is a key part of running your business. Here's a quick rundown of your main responsibilities:

• Use your individual Inland Revenue Department (IRD) number for all your business tax.
• File an individual tax return (IR3) each year to report your income.
• Pay tax on all your income, including your business profit.
• Register for and charge GST if your turnover is $60,000 or more in a 12-month period.
• Pay Accident Compensation Corporation (ACC) levies to ensure you're covered if you have an accident.

Sole trader income tax

Sole trader income tax is the tax you pay on your business profits using individual tax rates, not company rates. You calculate it by subtracting allowable business expenses from your total income.

Here's how it works:

• Calculate your taxable income: Subtract allowable business expenses from total revenue
• Apply individual tax rates: Use the same progressive rates as employed individuals
• File an IR3 return: Submit your annual return using your individual IRD number
• Claim deductible expenses: Include home office costs, vehicle expenses, and other business-related costs

Income tax rates in New Zealand

Sole traders pay tax at the same progressive rates as employees, with individual income tax rates applying based on your total taxable income for the financial year.

Current income tax rates (from 1 April 2024):

• $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%

For example, if your taxable income is $60,000, you pay 10.5% on the first $15,600, 17.5% on income from $15,601–$53,500, and 30% on the remaining $6,500.

When is your sole trader income tax due?

Sole trader income tax is due by 7 February following the end of the financial year (1 April to 31 March). You must file your IR3 return by 7 July, or by 31 March the following year if you use a tax agent.

Key deadlines:

• 7 July:File your IR3 return (or 31 March with advisor extension)
• 7 February: Pay any residual income tax (or 7 April with extension)

In your first year, file your return and pay any tax owed by the February deadline. From your second year onwards, you may need to pay provisional tax in instalments if you owe $5,000 or more.

GST registration for sole traders

GST registration becomes mandatory when your business turnover reaches or is expected to reach $60,000 in any 12-month period. Once registered, you charge 15% GST on sales and claim it back on business expenses.

You must register if either applies:

• Your turnover was $60,000 or more in the last 12 months
• You expect turnover to reach $60,000 in the next 12 months

ACC levies for sole traders

ACC levies are compulsory payments that cover you for treatment and income support if you're injured. As a sole trader, you pay these levies based on your earnings and the risk level of your work.

Inland Revenue collects ACC levies on your behalf after you file your tax return. The amount varies depending on your liable earnings and industry classification.

Tax deductions and allowable expenses

Tax deductions reduce your taxable income by subtracting legitimate business expenses from your revenue. The more accurate your deductions, the less tax you pay.

Common deductions for sole traders include:

• Home office costs: Claim a percentage of rent, power, and internet based on the space you use for business
• Vehicle expenses: Deduct business-related travel using either actual costs or the IR mileage rate
• Equipment and tools: Claim computers, software, and tools essential for your work
• Professional services: Include accounting fees, legal advice, and business insurance
• Marketing and advertising: Deduct website costs, business cards, and promotional expenses
• Professional development: Claim courses, conferences, and subscriptions related to your trade

Keep receipts and records for all expenses. Inland Revenue may ask for proof if they review your return. Your accountant can help identify deductions you might have missed.

What is provisional tax?

Provisional tax is income tax paid in advance through instalments during the financial year, rather than one lump sum at year-end. It applies when you owe $5,000 or more in residual income tax.

Key benefits:

• Spread payments evenly: Pay smaller amounts regularly instead of one large sum
• Pay the same total: No additional tax, just a different payment schedule
• Avoid year-end surprises: Plan ahead with predictable tax obligations

The provisional tax threshold is $5,000. If your residual income tax from your last return exceeded this amount, you must pay provisional tax the following year.

If you owe less than $5,000:

• Pay your full tax bill in one lump sum
• Submit payment by 7 February (or 7 April with extension)

If you owe $5,000 or more:

• Pay provisional tax in instalments throughout the year
• Follow the payment schedule based on your GST filing frequency

Plan ahead for your second year because you pay two amounts: your first year's tax bill (due February) plus provisional tax instalments for the current year.

To manage this overlap:

• Make voluntary payments during your first year to reduce the lump sum
• Set aside money monthly throughout year one for the second-year payment
• Use accounting software to track income and automate tax savings

In your third and later years in business, you usually just pay provisional tax throughout the year if your residual income tax was more than $5,000. If you're paying the right amounts, your end of financial year will be predictable.

You still need to file an IR3 by 7 July (or by any extension date) each year, even if you are paying provisional tax. If it turns out you paid either too much or too little provisional tax throughout the year, you'll get a tax refund or need to pay more tax.

Use-of-money interest (UOMI) applies when your provisional tax payments differ from what you actually owe:

• Underpaid provisional tax: You pay interest to Inland Revenue (IR)
• Overpaid provisional tax: IR pays interest to you

If you're late filing or paying, penalties may apply. Let IR know if you think you're going to be late to discuss payment arrangements.

How is provisional tax calculated?

You calculate provisional tax based on your previous year's tax because you can't know your exact profit in advance. Four methods help match payments to your situation:

• Standard option: Use when your income stays similar or increases year-on-year
• Estimate option: Use when you expect your income to decrease
• Ratio option: Use when your income fluctuates seasonally throughout the year
• Accounting Income Method (AIM): Use when your income is irregular or your business is new

Choose the right method: Consult your accountant as your business needs may change over time.

Standard option

The standard option calculates provisional tax as your previous year's residual income tax plus 5%. If you haven't filed that return, it's based on your tax from two years ago plus 10%.

This is the default method and works well when your profit is likely to stay the same or increase.

Estimate option

The estimate option lets you set your own provisional tax amount based on what you expect to earn. You can adjust your estimate as many times as needed until the final instalment is due.

This method works well when you expect lower income, such as taking parental leave or losing a major client. For example, if last year's tax was $10,000 but you expect $7,000 this year, you base your instalments on the lower figure.

Accurate estimates are important. If you underpay, you may face interest charges or penalties when you file your return.

Ratio option

The ratio option calculates provisional tax based on your GST returns, adjusting payments as your income changes throughout the year. This suits businesses with seasonal or fluctuating income.

To use this method, you must meet qualifying criteria and notify Inland Revenue before your financial year begins.

Accounting Income Method (AIM)

The Accounting Income Method (AIM) calculates provisional tax in real time using accounting software like Xero. You only pay tax when you make a profit, and nothing in months when you don't.

AIM suits you if:

• Your yearly turnover is under $5 million
• Your income is irregular, seasonal, or hard to forecast
• Your business is new or growing

Unlike other methods, AIM requires provisional tax payments from your first year. This means you spread payments more evenly instead of paying both years at once. You can receive refunds for overpayments immediately rather than waiting until year-end.

You can compare AIM with the other accounting methods on the IR website.

When is provisional tax due?

Provisional tax due dates depend on your GST registration status and the calculation method you choose.

If you're registered for GST:

• Standard and estimate options: Three instalments due 28 August, 15 January, and 7 May (or two instalments due 28 October and 7 May if you file GST six-monthly)
• Ratio option: Six instalments due 28 June, 28 August, 28 October, 15 January, 28 February, and 7 May
• AIM: Monthly or two-monthly instalments, matching your GST filing frequency (for example, instalments are due on May 28 if you file GST monthly and have a March balance date)

If you're not registered for GST:

• Standard and estimate options: Three instalments due 28 August, 15 January, and 7 May
• AIM: Six two-monthly instalments

When a due date falls on a weekend or public holiday, payment shifts to the next working day. You can learn more about GST on the IR website.

Filing your sole trader tax return

The IR3 is the individual tax return you file each year to report your sole trader income to Inland Revenue. It includes your business income and expenses, plus any other personal income you receive.

File your IR3 by 7 July, or request an extension through a tax agent for a 31 March deadline. Inland Revenue uses this return to calculate your final tax bill for the year.

Sole trader vs company tax differences

Sole traders and companies pay tax differently because of how each structure treats business income.

As a sole trader:

• Your business and personal finances are treated as one
• You pay income tax at personal rates on all business profits
• You have simpler compliance requirements

As a company:

• You operate as a separate legal entity
• You pay company tax at the company rate (28%)
• You receive a wage or salary from the company
• You face more complex compliance, but gain legal protection

Managing sole trader tax

Managing your sole trader tax effectively prevents penalties, reduces interest charges, and keeps your cash flow healthy. A few key practices make tax time much simpler.

Key strategies:

• Use accounting software:Automate calculations and track deadlines
• Keep accurate records: Ensure proper expense deductions and correct income reporting
• Work with professionals:Engage bookkeepers or tax advisors to prevent costly mistakes
• Monitor cash flow regularly: Plan ahead for tax payments to avoid funding shortfalls

Streamline your sole trader tax with Xero

Sole trader tax becomes straightforward when you have clear records and the right tools. Accounting software tracks your income, manages expenses, and shows your financial position in real time, making tax time predictable and manageable.

Focus on running your business while your books take care of themselves. Try Xero and get one month free.

FAQs on sole trader tax

Here are some common questions sole traders have about tax.

How much tax will I pay as a sole trader?

Your sole trader tax depends on your total taxable income for the financial year. You add business profit to any personal income and pay tax at New Zealand's progressive individual rates, ranging from 10.5% to 39% depending on your income bracket.

How do I pay my sole trader tax?

You pay sole trader tax through your myIR account after filing your annual IR3 return. If your tax bill is under $5,000, pay it as a lump sum by the February deadline. If it's $5,000 or more, you'll pay in instalments throughout the year as provisional tax.

Do I need a separate bank account as a sole trader?

A separate bank account is optional, but highly recommended. Keeping business and personal finances apart makes tracking income and expenses much easier, which simplifies bookkeeping and tax return preparation.

What expenses can I claim as a sole trader?

You can claim expenses that are necessary to earn your business income. Common deductions include home office costs, vehicle expenses for business travel, equipment and tools, professional development, and accounting fees. Keep receipts and records for all claims.

What happens if I miss a tax deadline?

Late payment penalties and use-of-money interest may apply to overdue tax. If you need more time, contact IR early to discuss payment arrangements. Being proactive helps you stay on track with your obligations.