NZ contractor tax, explained

When you leave a salaried job and start contracting in New Zealand, nobody deducts tax before the money reaches you. The full invoice amount lands in your account, and some of it was never yours. This guide walks through the three things that come out of a contractor's income: income tax, GST, and ACC levies. By the end you'll know what each one is, when it's due, and roughly how much of every payment to treat as spoken for.

The three taxes

A New Zealand sole trader deals with three separate obligations:

• Income tax, paid on your profit for the year, at the same progressive rates employees pay.
• GST, 15% collected on top of your invoices once you're registered, held by you and passed on to Inland Revenue. It was never your money.
• ACC levies, a yearly invoice from ACC that covers you for injury, worked out from your self-employed earnings.

Each one has its own timing, which is most of what makes contracting feel harder than employment. Income tax arrives as provisional tax instalments through the year. GST arrives on a filing cycle you choose. ACC invoices you in arrears, after the year has ended.

Income tax

You pay income tax on your taxable profit: what you earned (before GST) minus your deductible business expenses. The rates from 1 April 2025 are:

• 10.5% on income up to $15,600
• 17.5% from $15,601 to $53,500
• 30% from $53,501 to $78,100
• 33% from $78,101 to $180,000
• 39% above $180,000

These are marginal rates: each rate applies only to the slice of income inside its band, not to the whole amount. A contractor with $100,000 of profit doesn't pay 33% on all of it; they pay 10.5% on the first slice, 17.5% on the next, and so on. On $100,000 the total works out to about $22,880, an effective rate of roughly 23%.

Because no employer is deducting PAYE, that tax builds up as a debt you owe at year end, unless you set money aside as you earn it. This is the single biggest habit that separates contractors who cruise through tax time from contractors who get a fright.

GST

GST is a 15% tax on most goods and services sold in New Zealand. Registration is compulsory once your turnover passes $60,000 in any 12 months, or as soon as you expect it to. Below that you can register voluntarily.

Once registered, you add 15% to your invoices. A $1,000 job becomes a $1,150 invoice: $1,000 for you, $150 collected on Inland Revenue's behalf. When you file a GST return, you pass on the GST you collected, minus the GST you paid on business purchases along the way.

The mental model that keeps people out of trouble: the GST portion of every payment is not income. It arrives in your account, but it belongs to Inland Revenue from the moment it lands. Contractors who treat the full invoice amount as theirs to spend are borrowing from a bill that always arrives.

ACC levies

ACC covers everyone in New Zealand for injury, and charges self-employed people a levy on their earnings to fund it. The levy has three parts: a work levy that depends on how risky your line of work is, an earners' levy at a flat rate ($1.75 per $100 of liable earnings for the 2026/27 year, including GST), and a small Working Safer levy ($0.08 per $100). Levies apply up to a cap on liable earnings, $156,641 for 2026/27.

For low-risk desk work, the three parts together come to roughly $2 per $100 of earnings once GST is included, so a contractor earning $100,000 can expect an ACC invoice around $2,000. Riskier classifications pay more.

The catch is timing: ACC invoices in arrears, after your tax return for the year is filed. Your first invoice as a new contractor can take well over a year to arrive, and then it covers everything at once. Money set aside early makes that invoice a non-event.

Provisional tax: how income tax actually gets paid

For your first year, Inland Revenue mostly leaves you alone, and you pay the whole year's income tax after you file your return. But if that bill (your residual income tax) comes to more than $5,000, you become a provisional taxpayer for the following year: instead of one bill at the end, you pay next year's tax as you go, in instalments.

On the standard option, with a 31 March year end and two-monthly GST, that means three instalments: 28 August, 15 January, and 7 May. Each is normally a third of last year's tax plus 5%. Other methods exist (estimation, a ratio option tied to GST, and an accounting-software method called AIM), and the right one depends on how steady your income is.

A worked example

A contractor bills $100,000 (before GST) in a year, is GST registered, works a low-risk desk job, and has modest expenses. Roughly:

• GST collected: $15,000. Passed on through GST returns, minus GST on business purchases. Never counted as income.
• Income tax: about $22,900 on the $100,000 (less if expenses bring the taxable profit down).
• ACC: about $2,000, invoiced in arrears.

So of the $115,000 that actually flows through the bank account, about $40,000 was never really theirs. The contractor's working rule of thumb: on every invoice paid, the GST portion plus roughly a quarter of the rest is spoken for. What's left is real income.

Setting money aside

Everything above reduces to one habit: every time an invoice is paid, move the tax portion somewhere it won't be spent. The mechanics matter less than the consistency. Common approaches:

• Per payment.Each time you're paid, transfer the GST plus your income tax percentage to a separate account. Most accurate, keeps pace with your real income.
• Monthly.Once a month, total the month's invoices and move one combined amount. Less precise between transfers, easier to remember.
• A separate account with no card.Whichever cadence you pick, the destination should be somewhere you don't see when you're deciding what you can afford.

How Coffer helps

Coffer is an invoicing tool for NZ contractors that does this arithmetic per payment, automatically. Each time you mark an invoice paid, it splits the payment into GST, income tax at your effective rate, and ACC, and shows you one number: what's actually yours to spend. The tax money stays in your own bank account; Coffer keeps the running tally of how much of your balance is spoken for and ringfences it visibly, so the provisional tax instalment or GST return never lands as a surprise. If you'd rather see it than take our word, the free take-home pay calculator runs these numbers on your own income.