Tax and ACC on sole trader profit.
Income tax + ACC
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Net profit
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Income tax
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After tax
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Your breakdown
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Why your tax bill arrives as a lump, not a payslip deduction
When you work for an employer, PAYE quietly skims tax off every pay and you never see the money. Go out on your own as a sole trader and that safety net disappears. Inland Revenue still expects the same income tax on your earnings, but now it is your job to hold it back, because nobody is doing it for you. The single biggest cause of sleepless nights for new self-employed Kiwis is spending the full deposit that lands in their account, then facing a tax bill they cannot pay. This calculator exists to stop that happening: it tells you, in plain numbers, how much of every dollar of profit belongs to IRD and not to you.
It is built for the freelancer, contractor, tradie, or online seller filing under their own IRD number. It works on net profit, your business income after deductible expenses, taxes it through the individual rates, and adds an indicative ACC earner levy so the figure is closer to reality than income tax alone.
The rates that bite, and the levy that follows
There is no tax-free threshold for a sole trader. The very first dollar of profit is taxed, starting at 10.5 percent up to $15,600, then 17.5 percent to $53,500, 30 percent to $78,100, 33 percent to $180,000, and 39 percent above that. These are the same brackets a salaried worker faces. On top of income tax sits the ACC earner levy, charged at roughly 1.67 percent of your earnings up to a cap. ACC actually invoices you separately and at a rate that depends on your industry risk classification, so the levy here is a guide, not the exact bill. A desk-based consultant and a roofer pay very different ACC rates for the same income.
A consultant billing $90,000 with $15,000 of costs
Say you invoice $90,000 over the year and have $15,000 of genuine business expenses: software, phone, travel, accounting fees. Your taxable profit is $75,000. Here is how the tool builds the number.
So about 21 percent of profit goes to tax and ACC at this level. Many advisers tell clients to bank closer to a third, and that is sensible: it builds a buffer for the year your income jumps a bracket, and it covers the ACC invoice that lands separately. The chart below splits the $75,000 profit into what you keep and what you owe.
Provisional tax and the $60,000 GST line
Once your residual income tax for a year passes the threshold, IRD shifts you onto provisional tax, where you prepay the next year in instalments rather than settling it all at once. It feels like a double hit in your first profitable year, because you square up last year and start prepaying this year together, so the set-aside discipline above matters even more in year two. Separately, watch your turnover, not your profit. If your sales in any twelve-month period are heading past $60,000 you must register for GST. The consultant above, billing $90,000, is well over that line and should already be charging and returning GST at 15 percent. GST is on gross turnover, so a low-margin business can cross the threshold long before it makes real money.
One point that often surprises people moving from salaried work: New Zealand has no general capital gains tax. If you sell a business asset such as a vehicle or equipment, the proceeds are usually outside the income tax net, though you may need to account for depreciation recovery on something you previously claimed. That is a genuine planning advantage, but do not assume every sale is tax-free, because intention to resell and certain property rules can pull a gain back into income.
What can I actually claim as a business expense?
Anything incurred in earning your income: tools and equipment, business-related phone and internet, vehicle running costs for work travel, professional subscriptions, accounting and insurance, and a floor-area share of home office costs if you work from home. The test is that the spend is for the business, not private living. Keep every receipt and invoice for seven years, because the deduction only stands if you can evidence it.
Should I stay a sole trader or form a company?
A company is taxed at a flat 28 percent, which can beat the 30, 33, and 39 percent personal rates once profits are high and you are reinvesting rather than drawing everything out. But a company adds compliance, accounting cost, and rules about how you pay yourself. As a rough rule, sole trader suits lower and variable profits, while a company starts to pay off when sustained profit pushes you into the top brackets. Take advice before switching, because the structure is hard to unwind.