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Understanding your pay and tax
What comes out of your pay before you see it, and why the figure on your payslip is not the figure you were offered.
26 situations worked through, 21 of them with the sums shown. Each one links to the guide that sets out the rules behind it, and that guide is where any rate or threshold is kept current.
The people in these situations are illustrations written to show how the rules land on somebody, not real customers and not case histories. The arithmetic is real and the rules are real; the names and the circumstances are made up to teach.
Nothing on this page matches that. Try a shorter word, or the full list of situations.
GST Explained
Andrew - Building Contractor
Andrew runs a small building business, providing labor services. In January, he worked on four different projects at various hourly rates. He needs to calculate his GST obligations for his monthly return.
- Week 1: $70 × 50 = $3,500 + GST ($525) = $4,025
- Week 2: $85 × 40 = $3,400 + GST ($510) = $3,910
- Week 3: $75 × 45 = $3,375 + GST ($506.25) = $3,881.25
- Week 4: $70 × 25 = $1,750 + GST ($262.50) = $2,012.50
Total GST collected: $1,803.75 Total invoiced (inc GST): $13,828.75
Susan - Freelance Graphic Designer
Susan runs a freelance graphic design business from home. She files GST returns two-monthly. During the March-April period, she had several projects and various business expenses.
- Branding project: $4,600 (inc GST) → $4,000 + $600 GST
- Website design: $6,900 (inc GST) → $6,000 + $900 GST
- Marketing materials: $4,025 (inc GST) → $3,500 + $525 GST
- Packaging design: $6,325 (inc GST) → $5,500 + $825 GST
Total GST collected: $2,850
Susan uses 20% of her home exclusively for business. She can claim 20% of rent/mortgage interest, power, and internet costs. She keeps a logbook showing her office space measurements and usage.
John - Construction Company Owner
John owns a medium-sized construction company. In April, he completed four projects involving both labor and materials. He files monthly GST returns.
- Project 1 - Residential home:
- Labor: $57,500 (inc GST) → GST: $7,500
- Materials: $172,500 (inc GST) → GST: $22,500
- Project 2 - Office renovation:
- Labor: $28,750 (inc GST) → GST: $3,750
- Materials: $86,250 (inc GST) → GST: $11,250
- Project 3 - Warehouse roof:
- Labor: $17,250 (inc GST) → GST: $2,250
- Materials: $40,250 (inc GST) → GST: $5,250
- Project 4 - Garden shed:
- Labor: $5,750 (inc GST) → GST: $750
- Materials: $11,500 (inc GST) → GST: $1,500
Total GST collected: $54,750
Tim - Commercial Fisherman
Tim is a commercial fisherman in Paihia selling to local restaurants. In December, he made several large sales but didn't receive payment that month. He still incurred business expenses and needs to file his GST return.
- Week 1: 3,000 kg @ $15/kg = $45,000 + GST ($6,750)
- Week 2: 2,500 kg @ $15/kg = $37,500 + GST ($5,625)
- Week 3: 4,000 kg @ $15/kg = $60,000 + GST ($9,000)
- Week 4: 3,500 kg @ $15/kg = $52,500 + GST ($7,875)
- Total sales: $195,000 + $29,250 GST
Payment received: $0 (all invoices unpaid at month end)
Tim uses invoice basis accounting. He must pay $25,350 GST even though he hasn't been paid by customers. If he used payments basis accounting (available for turnover under $2m), he would owe $0 GST collected and could claim a $3,900 refund. However, he'd need to account for the GST when customers eventually pay.
Maria - Cafe Owner
Maria owns a busy cafe in Wellington. She files GST returns monthly and deals with daily cash and EFTPOS sales. May was a typical trading month.
- Total sales (inc GST): $92,000
- GST-exclusive amount: $92,000 ÷ 1.15 = $80,000
- GST collected: $92,000 - $80,000 = $12,000
Maria's prices already include GST (as required for retail). She uses her EFTPOS terminal's daily reports to track sales accurately. She can't claim GST on food she or her family consume from the cafe - that's private use, not a business expense.
PAYE Tax System
Emma - Entry Level Worker ($50,000)
Emma just started her first full-time job as a customer service representative earning $50,000 per year. She's using tax code M (no student loan) and isn't enrolled in KiwiSaver yet.
- PAYE Tax Calculation:
- First $15,600 @ 10.5% = $1,638
- Next $34,400 @ 17.5% = $6,020
- Total PAYE: $7,658
- ACC Levy:
- $50,000 × 1.75% = $875
- Total Deductions:
- PAYE: $7,658
- ACC: $875
- KiwiSaver: $0
Net Annual Income: $50,000 - $8,533 = $41,467
Michael - Graduate with Student Loan ($65,000)
Michael is a software developer earning $65,000. He has a student loan and is enrolled in KiwiSaver at 3%. Tax code: MSL.
- PAYE Tax:
- First $15,600 @ 10.5% = $1,638
- Next $37,900 @ 17.5% = $6,633
- Next $11,500 @ 30% = $3,450
- Total PAYE: $11,721
- ACC Levy:
- $65,000 × 1.75% = $1,137.50
- Student Loan Repayment:
- Income above threshold: $65,000 - $24,128 = $40,872
- Repayment: $40,872 × 12% = $4,905
- KiwiSaver (3.5%):
- $65,000 × 3.5% = $2,275
- Total Annual Deductions:
- PAYE: $11,721
- ACC: $1,137.50
- Student Loan: $4,905
- KiwiSaver: $2,275
Total: $20,039
Michael's student loan repayment of $4,905/year ($189 per fortnight) is significant. However, the loan is interest-free while he's in NZ, so every dollar goes directly to reducing the principal. If his loan balance is $30,000, he'll pay it off in about 6 years at this rate.
Sarah - High Income Earner ($120,000)
Sarah is a senior accountant earning $120,000 per year. She contributes 6% to KiwiSaver and has no student loan. Tax code: M.
- PAYE Tax:
- First $15,600 @ 10.5% = $1,638
- Next $37,900 @ 17.5% = $6,633
- Next $24,600 @ 30% = $7,380
- Next $41,900 @ 33% = $13,827
- Total PAYE: $29,478
- ACC Levy:
- $120,000 × 1.75% = $1,752
- KiwiSaver (6%):
- $120,000 × 6% = $7,200
- Total Deductions:
$29,478 + $1,752 + $7,200 = $38,430
James - Two Jobs ($45,000 + $15,000)
James works full-time earning $45,000 (M code) and part-time on weekends earning $15,000. His total income of $60,000 falls in the $53,501 to $78,100 band, so his second job uses the SH code (30%).
- PAYE calculation:
- First $15,600 @ 10.5% = $1,638
- Next $29,400 @ 17.5% = $5,145
- Total PAYE: $6,783
- ACC: $45,000 × 1.75% = $787.50
Net from primary job: $37,430/year
James overpaid PAYE by about $1,062. The SH code applied 30% to all of his second income, but part of that income actually sat in the 17.5% band, so a little too much was deducted. Inland Revenue's automatic income tax assessment after 31 March squares this up and pays the refund. Secondary codes get you close, but a two-job year is always worth checking.
Lisa - IETC Eligible ($42,000)
Lisa works as a retail manager earning $42,000. She's using tax code ME to receive the Independent Earner Tax Credit. No student loan, no KiwiSaver.
- First $15,600 @ 10.5% = $1,638
- Next $26,400 @ 17.5% = $4,620
- Total PAYE: $6,258
- ACC: $42,000 × 1.75% = $613
Net without IETC: $35,129
Lisa is in the perfect income range for IETC. If she earns a pay rise to $48,001 or more, she loses the entire $520 credit. This creates a "tax cliff" where earning $1 more costs $520 in lost credits - effectively a 52,000% tax rate on that extra dollar!
Donation Tax Credits NZ
The Wilson Family, Palmerston North
Regular donors to World Vision, Heart Foundation, and their kids' school. Never claimed.
This one turns on the rules rather than on a calculation, so there are no sums to show.
Jade, 29, Auckland
Donated $500 to a Givealittle page for a family whose house burnt down. Tried to claim the 33.33% credit.
This one turns on the rules rather than on a calculation, so there are no sums to show.
The Nakamura Family, Christchurch
Tithe $200/week to a registered evangelical church via automatic payment. Use Pushpay for receipts.
This one turns on the rules rather than on a calculation, so there are no sums to show.
Hemi, 41, Wellington
Works at Spark. Donates $50/month to World Vision. Didn't know about Spark's matching programme.
This one turns on the rules rather than on a calculation, so there are no sums to show.
ESCT Guide
Small Business 5 Employees
Cafe with varied employee salaries
- Total salaries: $185,000
- Total gross contributions (3%): $5,550
- Total ESCT: $1,202
- Total net to employees: $4,348
- Employer real cost: $5,550 (ESCT from gross)
Tech Company Higher Contributions
Company offers 7% to attract talent
- Salary: $140,000
- ESCT rate: 33%
- Gross contribution (7%): $9,800
- ESCT: $9,800 × 33% = $3,234
- Net to employee: $6,566
Wrong Rate Correction
Employer used wrong ESCT rate, employee claims refund
- Employee actual salary: $50,000
- Correct ESCT rate: 17.5%
- Employer mistakenly used: 30%
Seasonal Worker
Orchard worker employed summer only
- Works December-March (4 months)
- Earns $4,000/month = $16,000 total
- No prior year data (new to NZ)
Income Tax Guide NZ
Career Progression
Observation: Each promotion increases effective rate. At $150K, keeping 73.7% of gross income.
This one turns on the rules rather than on a calculation, so there are no sums to show.
Contractor vs Employee
- Salary: $85,000
- Tax: $17,927.50
- KiwiSaver (3%): $2,550
- Take-home: $64,522.50
Part-Time Work While Studying
- Part-time earnings: $18,000
- Tax: $2,058
- Student loan repayment (12%): $480
- Take-home: $15,462
- Monthly: $1,289
Rental Income
Salary $75,000 + Rental $15,000
- Rental income: $15,000
- Rental expenses: $8,000
- Net rental income: $7,000
- Total income: $75,000 + $7,000 = $82,000
- Tax on salary: $14,720.50
- Tax on rental (30% then 33% marginal): $2,217
Total tax: $16,937.50
YTD Earnings Guide
Mortgage Application Mid-Year
Applying for home loan in November, started new job in June:
- New job start: 1 June 2024
- Current date: 15 November 2024
- Time in role: 5.5 months
- YTD (from 1 April): $48,000
Sales Rep Commission Tracking
Tracking progress toward annual quota:
- Base salary: $50,000
- Target commission: $30,000
- OTE (On-Target Earnings): $80,000
Tax Planning with Rental Income
Using YTD to plan year-end tax position:
- Employment YTD: $68,000
- Projected annual salary: $82,000
- Rental income to date: $15,000
- Rental expenses to date: $8,000
- Net rental: $7,000
Redundancy Income Planning
Made redundant in January, planning finances:
- Finished: 31 January 2025
- YTD to redundancy: $55,000
- Redundancy payment: $25,000
Saving and investing Running a business Buying a first home Running a household Debt you cannot pay Scams, faulty goods and your rights Changing or losing a job Separation, death and estates Owning a rental or holiday home Starting work for the first time
Every situation
Situations are taken from the guides listed above and are worked examples for education, not advice. Figures used in an example were current when the guide was written; the guide holds the maintained figure. Last reviewed 2026-09-07. See also the arithmetic on its own, every question the site answers and the guides.