What are the tax responsibilities of a small business in New Zealand
| Published date | 19 May 2021 |
| Subject Matter | Tax |
| Law Firm | LegalVision |
| Author | Mr Paul Cooper |
One of the most important responsibilities of being a business owner is correctly managing your tax responsibilities. You might have accountants and payroll software to help with your tax affairs. Still, it is important that you understand the different taxes you and your business must pay. This article explains your common tax responsibilities as a small business owner in New Zealand.
IRD NumbersAn Inland Revenue Department (IRD) number is a unique number attached to a taxpaying entity, like a person, company or partnership. The first step in managing your business' tax affairs is registering an IRD number.
You should already have a personal IRD number for your individual tax responsibilities. If you are running your business as a sole trader, you simply use your IRD number.
If you are a member of a partnership, you and the other partners will also use your personal IRD numbers. However, the partnership itself should also have its own IRD number. You and the other partners also need to declare your share of the partnership income in your individual tax returns. Still, the partnership itself will file a tax return allocating the profits or loss to the different partners. This is despite the partnership itself not paying income tax.
Further, if you run your business through a company, it should have its own IRD number. You can register an IRD for a business entity such as a company or partnership on the Inland Revenue website.
Income TaxBusinesses pay income tax on their profits, that is, their income minus their expenses. For this reason, it is crucial to keep a detailed record of your business expenses. Doing so helps minimise tax payable by maximising deductions.
You can claim a range of different expenses as deductions, some of which you can only deduct a certain percentage of. Also, you can find a more detailed look at business deductions on the IRD website.
Additionally, the rate of tax your business will pay on its profits depends on how your business is structured. Suppose you operate your business as a sole trader. In that case, you are a member of a partnership or a beneficiary of a trust in your personal capacity. You simply include your business income with the rest of your personal income and pay tax at your personal income tax rate.
New Zealand's personal income tax rates as of 1 April 2021 are set out below:
| For each dollar of income | Tax Rate |
| Up to $14,000 | 10.5% |
| Over $14,000 and up to $48,000 | 17.5% |
| Over $48,000 and up to $70,000 | 30% |
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