The New Zealand Tax System Explained

For someone who doesn’t know very much about taxes I seem to write about them a lot. I hope you’ll forgive my poor excuse for an explanation, but it is kinda one of the most important things to understand when you move to live and work in a new country, and a bit of a dry topic…

The Inland Revenue Department (IRD) is the New Zealand Government’s Tax Office and their website is a must read for all things finance and tax in NZ – remember I don’t pretend to be an expert (because I’m not) and always recommend obtaining legitimate financial/tax advice for your individual circumstances.

But here is my (very) basic overview of what you need to know so you can work out roughly how much you’ll end up with in your pocket each pay and avoid being chased down by the authorities!


What taxes do I have to pay in New Zealand?

IRD will collect three main taxes from you here:

  • Income Tax (this includes an ACC Earner’ levy)
  • ACC Work Levy and Working Safer Levy (only if you’re self-employed or run a business)
  • GST: if you’re self-employed and earn over $60,000 in any 12 month period (you charge your clients, collect it and send it to IRD).


How do I pay my taxes in New Zealand?

I mentioned applying for your IRD number in my Life Admin Checklist for Arriving in NZ post. This number allows the tax office to identify you, calculate how much you’ve earned and how much tax you must pay each financial year (which runs from 1st April to 31st March annually).

If you’re an employee, your employer will use your IRD number to pay your taxes to IRD on your behalf using the Pay As You Earn (PAYE) system. Easy.

If you’re a contractor you can choose to make schedular tax payments throughout the year, or to pay when you file your tax return, again using your individual IRD number (no need to establish a company/business unless you decide this structure is right for you).


What’s my Tax Code?

When you give your employer your IRD number you will also have to give them a tax code – this helps them work out how much income tax to deduct before they pay you.

You’ll need to pick from M, ME, SL, S, SB, SL, ST… Working this out seemed a little confusing to me initially, but IRD give you a nice little flow diagram on the form to use based on your situation:

(IRD website 2021)

To me picking tax codes looks like a pretty complicated way of saying “I guess I’ll earn this much this year and probably should be in this tax bracket”.

When I first did my form I underestimated my income and received a helpful letter from IRD after a few weeks suggesting my employer and I use a different code. The idea being there’s not too big a tax bill or tax refund for me at the end of the financial year.


So how much tax will I pay?

Well, it depends on the tax code you just picked of course!

Here’re the rates for 2021:

(IRD website 2021)
(IRD website 2021)

If you’re employed Earner’s Levies are included in your PAYE Income Tax (so this is not an extra deduction on top) but just for your information, the rate as of 2021 is $1.30 per $100 up to a maximum of $1819.66.

If you’re self-employed you’ll have to pay Earner’s Levies at this rate, then your Work Levy and Working Safer Levy will be calculated when you file your tax return based on your individual circumstances, and ACC will send you an invoice. There is a calculator on the ACC website here if you’d like to work out an estimate.


Am I resident in New Zealand for tax purposes?

Ah that age old question… this is where that notoriously grey area of international tax law comes to the fore.

The simple answer is if you earn income in New Zealand and reside here for 183 days or more of the year, it’s likely you’ll be considered resident and pay your taxes here.

If you’re a national, citizen or resident of another country I highly recommend getting some advice from an accountant with specialist international tax knowledge as there can be all sorts of implications for where you are domicile, where you hold most of your assets, whether there is a Double Taxation Agreement in place with your home country… it gets complicated and you’ll definitely benefit from some advice on how to arrange your affairs to pay the least tax possible.


Do I have to lodge a tax return?

If you’re employed, probably not. IRD will do an automatic assessment for you based on the PAYE information provided by your employer throughout the year – no paper work for you!

If you’re self-employed probably yes, because you generally haven’t paid any tax on your income throughout the year.

Basically at the end of the tax year IRD will send you either:

1) An automatically issued income tax assessment informing you if you have either no tax due, a tax bill or a tax refund.

2) A request to provide or confirm information about your income (just in case you earned anything outside of your reported wages)

3) A message telling you to complete your tax return if you’re self-employed  (you’ll have the option to do this online or with a paper form).


Can I make tax deductions in New Zealand?

Known as “individual expenses” here, there are a few things you can claim that will reduce your taxable income.

For employees:

  • Fees charged by an accountant or tax agent to complete your tax return
  • Income protection insurance
  • Interest on money you’ve borrowed to invest
  • Interest paid to IRD for late payment of tax
  • i.e. not that much

For contractors:


And there you have it, my idiot’s guide to taxes in New Zealand. Not too many curve balls, but as they say knowledge is power so hopefully you’ve picked up a few bits that help keep a bit more cash in your pocket!


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