What are the Main Small Business Taxes and Levies?

Income tax and provisional tax

In New Zealand everyone has to pay tax on the money they earn, whether they’re an employee, sole trader, contractor or in a partnership. Companies also have to pay tax on their profit (income less the expenses related to earning that income).

Income tax and provisional tax are actually the same thing. Provisional tax is just a way of paying your income tax in advance instalments during the year, based on your expected annual income. Inland Revenue will let you know if you have to pay provisional tax. It’s usually required if you paid more than $5,000 in income tax the year before.

GST

If you or your company are registered for GST (goods and services tax), you have to add 15% onto what you charge and pay it to Inland Revenue. So you’re really just collecting GST on the government’s behalf.

If you’re registered for GST, you can also claim back any GST you pay on expenses related to the GST-generating work you do.

You have to register for GST and start filing returns with Inland Revenue as soon as you think you’ll earn more than $60,000 in the next 12 months. This excludes any employment income you pay PAYE tax on. Otherwise, registering for GST is optional. There can be benefits of registering for GST even if you have less than $60,000 in revenue.

Fringe benefit tax

Fringe benefit tax (FBT) applies when a business provides something of personal benefit (a perk) to an employee or shareholder employee and the perk has not already been taxed.

Common examples include providing an employee with:

Financial contributions towards insurance premiums or gym memberships
Private use of a vehicle owned by the business
Discounted goods or services, such as making your products available at staff rates
Low interest loans

ACC levies

ACC collects three levies to fund people’s claims when they’re injured and to pay for injury prevention programmes. Based on income and the type of work you do, they’re known as the work levy, earners’ levy and working safer levy. Sole traders pay all three levies. Employers pay the work levy and working safer levy and deduct the earners’ levy from each employee’s pay on Inland Revenue’s behalf.

KiwiSaver-related taxes

Here’s a quick summary of how tax works with KiwiSaver in New Zealand.

Individuals’ percentage contributions are calculated on their pre-tax income, but they still pay tax on their full income
Employer contributions are taxed (see ESCT below)
KiwiSaver investment earnings, such as interest and dividends, are taxed – but when you withdraw money from KiwiSaver it is not taxed

PAYE tax

PAYE stands for ‘pay as you earn’. PAYE tax is deducted from an employee’s pay by their employer according to the employee’s income and tax code. The employer forwards the deductions to Inland Revenue. For mor help see our PAYE tax calculator.

ESCT

As its name suggests, employer superannuation contribution tax (ESCT) is the tax an employer deducts, on Inland Revenue’s behalf, from cash contributions they make to an employee’s superannuation account, such as KiwiSaver.

Articles in the Small Business Guide to Tax series

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