Drawings vs Deductible Expenses Calculator NZ 2026

Rates current for the 2026/27 tax year. Reviewed 5 August 2026.

Quick answer A sole trader invoicing $120,000 with $30,000 of deductible expenses is taxed on $90,000.00, whether they drew $60,000 or nothing at all. Income tax and ACC come to $21,863.50, so the most they can safely take out is $68,136.50. Treating the $60,000 of drawings as an expense would put the provision at $4,920.00 and leave them $16,943.50 short.
Calculate.co.nz is proud to be partnered with Health Based Building, a leader in sustainable and health-conscious building innovation. With over a century of experience, they develop high-performance systems like Foreverbreathe Specification, Magnum Board, and Foreverbreathe Paints to support energy-efficient, non-toxic living environments. Their commitment to healthier homes aligns with our belief that informed choices lead to better outcomes for Kiwi households.
Calculate.co.nz partner: Health Based Building

Almost every sole trader who gets a nasty surprise from their first tax bill made the same mistake, and it is a reasonable one. Money leaves the business account every week to pay for groceries and rent, it looks exactly like a wage, and a wage is deductible. But a wage is deductible because it is paid to somebody else in return for work that earned the income. A payment to yourself is not a transaction between two parties at all, because a sole trader and their business are the same person in law. So drawings reduce your taxable profit by nothing whatsoever. You are taxed on what the business made, not on what you took out, and if those two numbers differ the tax follows the first one. The practical version of that rule is the number this page is built around: profit less tax and levies is what is genuinely yours, everything above that line is money you are holding for Inland Revenue, and the further into the year you go before working that out, the harder it is to fix.

What you are taxed on
$90,000.00
your profit, whatever you drew
Tax and ACC you owe
$21,863.50
24.29% of your profit
Safe to draw
$68,136.50
$8,136.50 of headroom left

What the business actually made

Business revenue$120,000.00
Less deductible business expenses$30,000.00
Taxable profit$90,000.00
Income tax on the profit$19,577.50
ACC earner levy at 1.75%$1,575.00
ACC work and Working Safer levy$711.00
Total tax and levies$21,863.50
Effective rate on your profit24.29%

What you took out, and what you could have

Drawings taken during the year$60,000.00
Do drawings change your taxable profit?No, not by one cent
Most you can safely draw$68,136.50
Headroom left$8,136.50
Share of your profit drawn66.67%
Set aside per $100 of profit$24.29

The cost of counting drawings as an expense

Profit if drawings were deductible, which they are not$30,000.00
Tax and ACC you would have provided for$4,920.00
Tax and ACC actually owed$21,863.50
Shortfall you would have to find$16,943.50

What to hold back at different profit levels

The set-aside rate rises with profit, because the tax rates do. A single percentage used across a growing business will always be too low. Your own profit is highlighted.

Taxable profitIncome taxACC leviesSet asideSafe to draw
This is an estimate, not tax advice, and it is for sole traders and partners. All figures are GST exclusive; if you are registered, the GST you collect is never yours and must be held separately from the amounts shown here. A company works differently: money taken out is a shareholder salary, a dividend or a current account loan, each with its own treatment, and none of it is modelled here. ACC levy rates depend on your classification unit and are subject to minimum and maximum liable earnings, and student loan repayments and Working for Families are not included. Confirm your position with Inland Revenue or your accountant.

The test that separates the two

Ask who received the money and why. If it went to a third party in return for something the business needed to earn its income, it is an expense and it reduces your profit. If it went to you, for your own purposes, it is drawings and it changes nothing about your tax. The awkward cases sit in between and are resolved by apportionment rather than by choosing a side: a vehicle used for both is deductible at the business share, a phone bill is deductible at the business share, a home office is deductible at the business proportion of the floor area. What you cannot do is convert a personal cost into a business one by paying it from the business account. The account the payment left has never been the test.

Why the safe drawings number matters more than the tax number

Knowing the tax bill is useful once a year. Knowing what fraction of every payment received is not yours is useful every week, and it is the only version of this that changes behaviour. The set-aside figure in the table above is that fraction: hold it back from each payment as it arrives, put it somewhere separate, and the bill arrives as an inconvenience rather than a crisis. The rate is not constant, which is the part people miss. As profit grows it crosses into higher brackets, so a percentage chosen in a lean year is systematically too low in a good one, and the shortfall compounds because provisional tax for the following year is based on the year you just under-provided for.

Worked example

A sole trader invoices $120,000.00 and has $30,000.00 of genuine deductible expenses, so the business made $90,000.00. Income tax on that is $19,577.50 and ACC levies at the earner rate plus a 79 cent work levy come to $2,286.00, giving $21,863.50 to find, an effective 24.29% of profit. The most that can safely be taken out is therefore $68,136.50.

They actually drew $60,000.00, which leaves $8,136.50 of headroom, so they are in good shape. Had they treated those drawings as an expense, they would have recorded a profit of $30,000.00 and provided $4,920.00 for tax and ACC. The bill would still have been $21,863.50, leaving $16,943.50 to find from a business that had already spent it.

How this is calculated

Taxable profit is revenue less deductible expenses, and drawings are excluded from that calculation entirely because they are not expenses. Income tax uses the rates in force from 1 April 2025: 10.5% to $15,600, 17.5% to $53,500, 30% to $78,100, 33% to $180,000, and 39% above that. ACC applies the 1.75% earner levy and the work levy rate you enter to the profit, capped at maximum liable earnings of $156,641. Safe drawings are profit less income tax less ACC levies. The shortfall calculation reruns the same arithmetic on the profit you would have reported had drawings been deducted, and takes the difference against the tax actually owed. Everything is GST exclusive.

Related NZ calculators

Data sources: the rates and thresholds on this page are maintained against Inland Revenue and ACC. Figures are checked twice monthly.

Frequently asked questions

Are drawings a business expense in New Zealand?

No. For a sole trader, drawings are simply you moving your own money from one place to another, and they reduce your taxable profit by nothing at all. The business is not a separate person from you, so paying yourself is not a transaction between two parties, it is a transfer within one. This catches people out because drawings look exactly like a wage in a bank statement: a regular payment out of the business account. The test is whether the payment was incurred in earning the income. A wage paid to someone else was. A payment to yourself was not.

So what actually reduces my tax?

Costs incurred in earning your income: materials, subcontractors, tools, vehicle running costs at the business share, home office costs, insurance, accounting fees, software, professional subscriptions. Each one reduces taxable profit by its amount, and therefore reduces tax by its amount multiplied by your marginal rate. That is the whole mechanism. A deduction is worth your marginal rate, not its face value, so it never makes an unnecessary purchase free, and drawings do not enter the calculation in either direction.

How much can I safely take out of my business?

Your profit less the income tax and ACC levies on it, and less anything you owe for GST if you are registered. Everything above that line is money you will need back. The difficulty is timing rather than arithmetic: profit is earned all year but the tax on it falls due months after the year ends, so a business can be solvent and still be spending money it has already committed. Setting aside a fixed percentage of every payment received, into an account you do not touch, is the standard defence and it works.

Is it different if I have a company?

Yes, substantially, and this calculator does not model it. A company is a separate legal person, so money you take from it is a shareholder salary, a dividend, or a loan recorded in your shareholder current account, each with its own tax treatment. A shareholder-employee salary is deductible to the company and taxable to you; an overdrawn current account can attract fringe benefit tax or deemed interest. If you operate through a company, the questions this page answers are the wrong questions for you and you should take specific advice.

What if I drew more than my profit?

You are living on capital, working capital, or money set aside for tax, and none of those is income. Drawing more than your profit does not create a tax deduction or a loss; the tax on the profit you did make is unchanged and still due. It is worth separating the two questions: whether the business made money, which is the profit line, and whether you took more out than it made, which is a solvency question. This calculator answers both, but they have nothing to do with each other and the tax bill only responds to the first.