# Taxes for Contractors in NZ



## ferretpossum (Jul 12, 2014)

Hello,

I'm in the very fortunate position of being married to a Kiwi, and having many friends in NZ who are prepping us for our move from the UK to Wellington next year.

However, one thing they (and the internet) haven't been able to give me much info on is taxation in NZ regarding contractors (I'm a contract business analyst).

I've looked at NZ taxation for permanent employees, but wondered if similar tax laws operate in NZ as in the UK - i.e. for contractors who work through their own limited companies, can we opt to take part of our salary as dividends, leaving the rest in the company pot and therefore avoiding higher-rate taxation?

Also, are there any accountancy firms in Wellington which specialise in this area that anyone would recommend?

I'm aware this post makes me sound sort of dodgy. I should say I'm a total leftie who doesn't mind paying his share, but if there's a more tax-efficient way of taking the readies, I'd be daft to avoid it.

Thanks in advance. And apologies if there's a post/answer on this already.


----------



## escapedtonz (Apr 6, 2012)

Hi,

Been mulling this one over for a while, but after some discussion with colleagues the answer should be Yes, you can take part of your salary as dividends and thus benefit from paying less tax by retaining income/funds/profit in the business.

As with many things here, income tax is different than in the UK, although maybe only slightly with different terminology.

I'm sure you've had a look, but all the answers will probably be here Inland Revenue - Te Tari Taake

You may fall in to the category of a Sole Trader so maybe have a look at this link Sole traders (Find out about)

A colleague who I'm on shift with today was in the exact same position as you a couple of years ago before he came working here. He was an aircraft engineer but worked for himself and as such contracted himself out for work. He set up his own NZ limited company where he and his wife were both Directors. He contracted his services to the NZ MOD where all his earnings were paid to the company pot. He would have been classed as a Sole Trader if he was the only individual in the company, however since his wife was also a Director then they couldn't be classed this way, however he isn't sure what they were classed as instead ?
They didn't pay themselves a regular wage. 
They took drawings from the company pot for personal use which was taxed at the individual tax rate - look at this link Income tax rates (Tax rates and codes)
At the end of the year, they used an accountant to work out the company net profit and then they paid tax on that at the flat company tax rate which he said was 28%.
He did say you can also set yourself up as an employee of the company instead but in doing so you have additional set up costs and accountancy costs as it's a bit more involved. In this scenario you can pay yourself a regular wage and pay regular income tax. You can pay yourself up to the limit for the 17.5% individual tax rate which is currently $48 000 and then retain the rest in the company where any profit is then taxed at the flat company rate of 28% whereas if you paid yourself more you'd be in to the 30% individual tax rate bracket.
He also recommends having someone else registered in the business (i.e. the wife) as you can then double the income and benefits, so you can pay both of you up to $48 000 each and only pay 17.5% income tax etc.
He says its all very legitimate and very easy to set up via any accountant in Welly.


----------



## ferretpossum (Jul 12, 2014)

That's great - lots of terrific links for me to follow there.

Thank you so much for giving such a detailed and helpful answer, I really appreciate it.

See you over yonder!


----------

