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Sole Trader Tax Guide: What You Can Claim

A practical guide to tax deductions for New Zealand sole traders, including common claimable expenses, record-keeping basics, and software cost tips.

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As a New Zealand sole trader, tax can feel like a wall of confusing obligations. This guide cuts through the noise to explain what you actually owe, what you can claim back, how GST fits in, and what good record-keeping looks like — in plain language.

This article is general information only, not tax advice. Tax rules change and individual circumstances vary. Check the IRD website or speak with a registered tax agent or accountant for advice specific to your situation.

What Does a NZ Sole Trader Owe in Tax?

Operating as a sole trader in New Zealand, your business income is treated as personal income. There's no company tax return - it all flows through your individual tax return. For the definitive overview, see the NZ sole trader tax guide. The main obligations are:

  • Income tax - paid on your net profit (revenue minus allowable expenses). NZ has a progressive tax rate structure; current rates are on the IRD website. Use the NZ income tax calculator to estimate what you'll owe before filing.
  • ACC levies — as a self-employed person, you pay ACC (Accident Compensation Corporation) levies. These are billed annually by ACC based on your self-employed income. The rate depends on your industry classification.
  • GST — if you're registered for GST, you collect 15% GST on your sales, claim it back on eligible purchases, and file regular GST returns. See the GST section below.
  • Provisional tax — once your residual income tax (RIT) exceeds a certain threshold, IRD expects you to pay tax in instalments during the year rather than a single lump sum at year-end. See below.

GST: When You Need to Register and What It Means

GST (Goods and Services Tax) in New Zealand is set at 15%. You must register for GST if your turnover exceeds NZ$60,000 in any 12-month period - this is a rolling 12-month window, not just a financial year. You can also voluntarily register below that threshold if it makes sense for your business (for example, if you have significant GST-bearing expenses you want to claim back).

Once registered:

  • You add 15% GST to your invoices and collect it from clients
  • You can claim a GST refund (input tax credit) on business expenses that include GST
  • You file regular GST returns through myIR (monthly, two-monthly, or six-monthly depending on your turnover and filing basis)
  • You must issue GST-compliant invoices to your clients — see the NZ tax invoice requirements guide for what those need to include

GST is not your income — you're collecting it on IRD's behalf. Keep that money separate so you're not caught short at filing time.

If you're not yet registered, watch your rolling 12-month revenue closely as you approach the $60,000 threshold. You need to register within 21 days of exceeding it.

Provisional Tax Basics

Provisional tax is how IRD collects income tax during the year rather than as a single end-of-year bill. Once your residual income tax (RIT) — the tax left over after any PAYE or other credits — exceeds the threshold (check the current threshold on the IRD website), you'll need to pay provisional tax in instalments.

The most common method is the standard uplift method: IRD calculates your instalments based on last year's RIT plus a percentage uplift. Payments are typically due in three instalments spread across the tax year (August, January, and May for most sole traders).

If your income varies significantly year to year, you might prefer the estimation method — you estimate your own tax for the year and pay based on that. If you underestimate, use-of-money interest applies on the shortfall.

The key practical point: put money aside as you earn it. A common approach is to set aside 20–30% of every payment you receive into a separate savings account earmarked for tax. The exact percentage depends on your income level — check current rates on the IRD website or ask your accountant. This habit eliminates the year-end tax surprise.

Allowable Business Expenses and Deductions

You can deduct business expenses from your income before tax is calculated. The general rule is: the expense must be incurred in earning your income. Common allowable expenses for NZ sole traders include:

  • Vehicle expenses — fuel, maintenance, registration, insurance, and depreciation for the business-use portion of your vehicle. Keep a logbook to establish the business-use percentage (required by IRD for mixed-use vehicles).
  • Tools and equipment — directly used in your work. Larger items may need to be depreciated over time rather than written off in one year.
  • Work clothing and safety gear — must be specifically required for the job (high-vis, steel-capped boots, branded workwear). Ordinary clothing that could be worn casually is generally not deductible.
  • Home office expenses — if you use part of your home exclusively for business (a dedicated office space), you can claim a proportion of rent/mortgage interest, rates, insurance, and power. The proportion is usually based on floor area.
  • Phone and internet — the business-use portion. If you use the same phone for personal and business, you'll need to estimate the split honestly.
  • Professional services — accountant fees, legal advice related to your business, bookkeeping.
  • Software subscriptions — invoicing software, accounting tools, project management apps used in your business. This includes tools like Invio.
  • Training and professional development — courses, workshops, and subscriptions that directly maintain or improve your existing business skills (not a career change).
  • Insurance — business insurance, professional indemnity, public liability.
  • Subcontractor costs — amounts you pay to subbies to help with your work.

What you cannot deduct: private or domestic expenses, fines and penalties, and costs that are capital in nature (though capital items may be depreciable).

If you're unsure whether an expense is deductible, IRD's website has useful guidance, or ask a tax agent. Claiming something that isn't legitimate creates more problems than it solves.

Record-Keeping: What to Keep and for How Long

Good records aren't just useful at tax time — they protect you if IRD ever asks questions. The rule of thumb for NZ businesses: keep records for at least 7 years.

What to keep:

  • All invoices you issue (your income records)
  • All receipts and invoices for business expenses
  • Bank statements for any accounts used for business
  • Vehicle logbook if you're claiming vehicle expenses
  • GST returns and workings if registered for GST
  • Any contracts or agreements with clients or subbies

Electronic records are fine — IRD accepts digital copies. A simple folder system (by month or by year) with photos of receipts works well. Some tradies use a dedicated business bank account to keep income and expenses separate, which makes reconciliation much simpler at year-end.

Invoicing software like Invio keeps your issued invoices organised and accessible automatically. See the sole trader invoice guide for how to set up a clean invoicing process from day one.

End-of-Year: Filing via myIR

The New Zealand tax year runs from 1 April to 31 March. Your income tax return (IR3 for sole traders) is due by 7 July following the end of the tax year, though this extends to 31 March the following year if you use a tax agent.

The process via myIR (IRD's online portal at myir.ird.govt.nz):

  1. Log in to myIR and open your IR3 return for the relevant year
  2. Enter your total business income for the year
  3. Enter your total allowable expenses (your deductions)
  4. myIR will calculate your net profit and the income tax owing
  5. Any provisional tax already paid is credited against the total due
  6. If you overpaid provisional tax, you'll receive a refund; if underpaid, you pay the balance

A good accountant or tax agent can handle the return for you and will often find deductions you missed. Their fee is itself a deductible expense. For many sole traders, especially as income grows, having professional help at year-end pays for itself. The sole trader financial reporting guide covers what records to keep and how to prepare your end-of-year figures.

To keep your invoicing and financial records organised throughout the year - making tax time much simpler - see Invio's features or compare plans.