GST for Sole Traders & Self Employed in NZ

GST is one of three taxes that a sole trader deal with – alongside income tax on your net profit and once your tax bill exceeds the $5,000, provisional tax paid in advance. GST registration becomes compulsory once your turnover reaches $60,000 in any rolling 12 month period and below that, GST registration is optional.

Calculate your GST separately with our GST Calculator, and see how your take-home compares to salaried income with our PAYE Calculator.

The Three Taxes a Sole Trader Actually Deals With

Unlike an employee, whose employer handles everything through a single PAYE deduction, a sole trader manages three genuinely separate obligations:

Tax	What it’s based on	When it applies
Income tax	Net profit (income minus deductible business expenses), at the same 10.5%–39% progressive rates as employees	Always, on all business profit
GST	Taxable turnover (revenue, not profit)	Compulsory once turnover exceeds $60,000 in any rolling 12-month period; optional below that
Provisional tax	An advance payment toward next year’s income tax	Once your residual income tax exceeds $5,000 in a year

The critical distinction most new sole traders miss: GST is calculated on turnover (money in), while income tax is calculated on profit (money in, minus deductible expenses). A sole trader can be required to register for GST while still running a relatively thin profit margin — the two thresholds aren’t related to each other.

GST Registration for Sole Traders

The rule is identical to any other business: registration is compulsory once your taxable turnover exceeds $60,000 in any rolling 12-month period, or you reasonably expect it to. Below that, registration is your choice.

No formal “becoming a sole trader” registration exists separately from this — you can simply start trading under your own name (or a trading name) and either notify IRD of your new income source through myIR, or declare it when you file your first IR3. Many sole traders also apply for a New Zealand Business Number (NZBN), a free identifier that simplifies dealings with suppliers and customers, though it isn’t mandatory.

ALso Read: GST Registration In NZ

How GST Interacts With Provisional Tax

Once your residual income tax exceeds $5,000 for a year, IRD moves you into the provisional tax system — you pay next year’s estimated tax in advance, rather than a single lump sum after filing. This is entirely separate from GST, but the two interact in one useful way: your GST filing frequency can affect your provisional tax payment schedule.

Provisional tax method	How it works
Standard (default)	Last year’s tax bill + 5%, split into 3 instalments (28 August, 15 January, 7 May)
Estimation	You estimate this year’s tax bill directly — useful if you expect lower income than last year
Ratio	Calculated as a percentage of your GST returns, adjusting automatically as income fluctuates — well suited to seasonal or variable income
Accounting Income Method (AIM)	Your accounting software calculates smaller, more frequent payments alongside your GST, based on real-time cashflow

If you file GST six-monthly, your provisional tax instalments generally align to a 6-monthly schedule (2 payments) rather than the standard 3.

Your first year of self-employment is provisional-tax-free — you still pay income tax on that year’s profit when you file, but you won’t be required to pre-pay toward the following year until your tax bill has actually exceeded $5,000 once.

Contractors on Schedular Payments — A Different GST Interaction

If you’re a contractor receiving schedular payments (formerly called “withholding tax,” still commonly referred to that way) — for example, through a recruitment agency or labour-hire business — tax is deducted from each payment at a rate you declare on an IR330C form, similar to PAYE.

The important GST-specific detail: schedular payment withholding tax is calculated on the amount after GST is removed, not on the GST-inclusive total. If you’re GST-registered, make sure your payer is calculating withholding tax on your GST-exclusive invoice amount — a common error otherwise.

Worked Example — A GST-Registered Contractor’s Full Tax Picture

Wiremu is a GST-registered IT contractor. Over the year, he invoices clients a total of $115,000 (GST-inclusive) — meaning $100,000 of that is his actual GST-exclusive income, with $15,000 collected as GST on behalf of IRD. His deductible business expenses (software, equipment, home office proportion) total $23,000 (GST-exclusive).

Item	Amount
GST-exclusive income	$100,000
Deductible expenses	$23,000
Net profit	$77,000
Income tax on $77,000 (2026/27 brackets)	$16,277.50
ACC earner’s levy (1.75%, capped)	$1,347.50
Total income tax + ACC liability	~$17,625
GST collected during the year (separate, remitted quarterly/bi-monthly)	$15,000 (passed to IRD via GST returns, not part of his own tax bill)

The key insight: the $15,000 in GST Wiremu collected was never his money — it was always destined for IRD, collected on their behalf. His actual personal tax liability (income tax + ACC) is calculated entirely separately, on his $77,000 net profit. Many new sole traders mistakenly treat GST collected as available cashflow, then struggle when the GST return comes due — a strong argument for holding GST collected in a separate bank account rather than your main operating account.

What Sole Traders Lose That Employees Have

Beyond the tax mechanics, it’s worth understanding what genuinely changes when you move from employment to self-employment:

• No employer KiwiSaver contributions — the employer match disappears entirely; self-employed people must contribute their own KiwiSaver directly if they want to keep building a balance
• No guaranteed sick pay, annual leave, or public holiday pay — all downtime is effectively unpaid unless planned for directly
• ACC cover works differently — sole traders are on CoverPlus by default (ACC pays up to 80% of taxable income if injured, based on your most recent completed financial year), with CoverPlus Extra available as an option for fixed, predictable cover levels instead

Record-Keeping Requirements

IRD requires sole traders to keep invoices, receipts, bank records, and supporting calculations for 7 years — the same retention period as any other GST-registered business. This applies whether or not you’re GST registered, though GST registration adds specific invoicing compliance requirements on top.

Frequently Asked Questions