How Much Tax Does a Business Pay in New Zealand?
Many businesses fail because they don’t manage their tax obligations properly.
If you’re in business, it’s essential to understand how much tax you’ll pay, how it’s calculated, when it’s due, and what methods are available to manage your payments.
In this article we’ll explain:
Taxable Profit – What Is It?
Your business pays income tax on its net profit. This is the total income from sales (revenue) minus deductible business expenses.
Example:
Revenue (Sales): $150,000
Less Expenses: ($50,000)
Equals: Taxable Profit $100,000
Expenses can include materials, wages, rent, utilities, accounting fees, marketing, and other operating costs. These are typically classified as:
- Direct costs – Directly tied to delivering your product/service (e.g. raw materials or subcontractors).
- Indirect costs – General business costs like rent, admin wages, or insurance.
Calculating Income Tax
The amount of tax you pay depends on your business structure.
1. Company
- Companies pay a flat 28% tax rate on taxable profit.
- If your company made $100,000 profit, it would owe $28,000 in income tax.
2. Trust
- Trusts pay a flat 33% on retained income.
- A trust earning the same $100,000 profit would pay $33,000 in tax.
3. Individual (Sole Trader / Partnership)
Sole traders and partnerships pay tax at marginal individual rates. As of 2025:
Income Range
Tax Rate
0 – 15,600
10.5%
15,601 – 53,500
17.5%
53,501 – 78,100
30%
78,101 – 180,000
33%
180,000+
39%
Example: Tax on Net Profit Calculation
Tax on $80,000 net profit (sole trader)
Income Band
Amount (portion of $80,000)
Tax Rate
Amount of Tax
0 – 15,600
15,600
10.5%
1,638
15,601 – 53,500
37,900
17.5%
6,632.50
53,501 – 78,100
24,600
30%
7,380
78,101 – 80,000
1,9000
33%
637
Total tax to pay
16,277.50
Understanding Income Tax Payments
There are three key terms to know:
1. Residual Income Tax (RIT)
This is the total income tax you owe for the year, before subtracting any provisional tax payments.
2. Terminal Tax
Terminal tax is the final payment made to settle the tax owed after provisional payments.
For example, if your RIT is $20,000 and you’ve paid $15,000 in provisional tax, your terminal tax is $5,000.
Terminal tax is usually due 7 February after the end of the tax year (or 7 April if you have a tax agent extension).
3. Provisional Tax
If your RIT is over $5,000, you’ll likely be required to pay provisional tax during the next year.
Provisional Tax – Four Calculation Methods
1. Standard Method (Default)
This uses your last year’s RIT plus 5%.
If your 2024 RIT was $12,000, your 2025 provisional tax is $12,600.
This would be split into three equal instalments (typically August, January, and May).
2. Estimation Method
Estimate your expected RIT and pay tax based on that.
- Useful if you know income will drop
- IRD may charge interest or penalties if you underpay without reasonable cause
3. Ratio Method
For GST-registered businesses using a two-monthly filing cycle, this method calculates provisional tax as a percentage of GST-inclusive sales.
If your previous RIT was $30,000 and GST-inclusive sales were $1.2m, your ratio is 2.5%. ($30,000/$1,200,000 = 2.5%). You’d pay 2.5% of current sales as provisional tax.
- Helps cashflow – payments rise and fall with sales volume.
4. Accounting Income Method (AIM)
Available to businesses using IRD-approved software (like Xero).
Provisional tax is calculated based on actual profit, and filed monthly or two-monthly with GST.
- Ideal for new businesses or those with fluctuating income
- More accurate – based on real-time performance
Frequenty Asked Questions
Do you pay tax when you sell a business in NZ?
There is no general capital gains tax in New Zealand. However, if you sell business assets like stock or equipment for more than their book value, the gain may be taxable. Selling company shares is usually not taxed unless you’re in the business of trading them.
How do self-employed people pay tax in NZ?
Self-employed individuals file an IR3 tax return each year and pay tax based on their net profit. If their tax bill exceeds $5,000, they may need to pay provisional tax in the following year.
What is terminal tax?
Terminal tax is the final payment needed to balance your income tax account. It’s due after the end of the financial year – usually by 7 February (or 7 April with an accountant).
What are the provisional tax due dates?
For most taxpayers with a 31 March balance date:
- 28 August
- 15 January
- 7 May
Businesses on six-monthly GST periods only pay twice: - 28 October
- 7 May
What happens if I miss a tax payment?
IRD may charge interest and late payment penalties if you miss a provisional or terminal tax deadline. Contact your accountant early to manage payment arrangements.
Need Help Navigating Your Business Tax?
Tax doesn’t need to be overwhelming – especially with the right support.
At ABA Chartered Accountants, we provide:
Whether you’re self-employed, operating through a company, or planning to sell your business – we’re here to help.
Get in touch with the friendly team at ABA Chartered Accountants today.