Sole Trader vs Company Tax Calculator NZ 2026/27

Quick answer: As a sole trader, all your profit is taxed every year at your personal rate, up to 39%. A company pays a flat 28% only on the profit it keeps back, but you still pay personal tax once that money is paid out as salary or dividend. For most owners who draw out most of their profit each year, a company mainly defers tax rather than saving it outright, and adds compliance costs. Enter your own numbers below to see your actual position.

This calculator compares the tax you would pay as a sole trader against the tax you would pay running the same business through a company, so you can see whether incorporating is likely to help you rather than relying on a rule of thumb. As a sole trader, every dollar of profit is added to your personal income and taxed at New Zealand's progressive marginal rates in the year you earn it, whether you spend it, save it, or leave it sitting in the business bank account. A company works differently. You pay yourself a salary as a working shareholder, which is taxed personally like any wage, and the company pays a flat 28% tax on whatever profit is left after that salary. If that remaining profit is later paid out to you as a dividend, it comes with imputation credits for the 28% already paid, so you only pay further personal tax if your own rate is above 28%. Enter your expected annual profit, the salary you would pay yourself, and the extra yearly cost of running a company, and the calculator shows the tax paid under each structure this year, then what happens if the money retained in the company is eventually paid out in full. It updates instantly as you type. This is built for sole traders and contractors weighing up incorporating, and for company owners checking whether they would be better off simplifying back to a sole trader. Treat the results as a planning estimate: your accountant can factor in your full circumstances, including ACC, other income and long-term plans.

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Updated  Current rates and legislation applied.
Verification & Methodology
Personal income tax: 2026/27 IRD brackets, unchanged from 2025/26: 10.5% to $15,600, 17.5% from $15,601 to $53,500, 30% from $53,501 to $78,100, 33% from $78,101 to $180,000, 39% above $180,000. Read live from the site's central rate file, paye-data.js.
Company tax rate: a flat 28% on company profit, under the Income Tax Act 2007. This does not vary with the amount of profit and is not part of paye-data.js, since it is a company rate rather than a personal PAYE rate.
Imputation credits: a fully imputed dividend carries credits at the maximum 28:72 ratio, so a $72 cash dividend grosses up to $100, with $28 of credit. See Inland Revenue's maximum imputation ratio guidance.
Not included: ACC levies are excluded from this comparison. Self-employed sole traders pay an ACC Work levy set by industry classification, while a shareholder-employee salary attracts the standard 1.75% ACC earner's levy through payroll, and the company may separately pay a Work levy. These vary too much by occupation to build into a general comparison; see the Self-Employed ACC Levy Calculator.
Last verified: 1 April 2026, against current Inland Revenue guidance and the Income Tax Act 2007.
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less tax and costs this year using a company, than as a sole trader
This yearSole traderCompany
Personal income tax$29,477.50$13,220.50 (on salary)
Company tax at 28% on retained profitN/A$13,580.00
Extra company running costsN/A$1,500.00
Total tax and costs$29,477.50$28,300.50
Cash in hand now$90,522.50$56,779.50 (from salary)
Retained in the company (after tax, not yet drawn)N/A$34,920.00
Extra top-up tax due when the retained profit above is later paid out in full as a dividend
$2,182.00
Net cash you would end up with from that retained profit: $32,738.00

Assumes the same salary and tax bracket apply when the profit is eventually distributed. ACC levies are not included. Figures are rounded for display and are a planning estimate, not a substitute for advice from an accountant.

What to do next: This decision has real accounting and legal costs attached, not just the numbers above, so talk to an accountant before you incorporate or dissolve a company. If you decide to stay, or start out, as a sole trader or contractor, services such as Hnry can set aside your income tax, ACC and, if you choose, KiwiSaver from every invoice automatically and file your return for you, with no company structure required at all.

Worked example

Mark runs a landscaping business and expects to make $120,000 profit this year before tax. He is deciding whether to keep operating as a sole trader or set up a company, paying himself a $70,000 salary and leaving the rest in the business. He estimates the extra cost of running a company, accounts, a company tax return and the Companies Office annual return, at $1,500 a year.

As a sole trader, his income tax on the full $120,000 is $29,477.50 across the five brackets, leaving him $90,522.50 in his hand for the year, before he decides what to spend or save.

As a company, Mark's $70,000 salary attracts personal income tax of $13,220.50, leaving him $56,779.50 in cash from his salary. The remaining $50,000 of profit, less the $1,500 running costs, leaves $48,500 taxed at the company's flat 28% rate, which is $13,580.00 of company tax, leaving $34,920.00 retained in the company. Add the salary tax, company tax and running costs together and his total tax and costs this year are $28,300.50, which is $1,177.00 less than the $29,477.50 he would pay as a sole trader. That saving comes from taxing the retained $48,500 at a flat 28% instead of the 30% and 33% marginal rates that slice of income would attract in his own hands.

The $34,920.00 sitting in the company is not fully free of tax, though. If Mark later pays it all out to himself as a fully imputed dividend while still in the same tax bracket, his combined taxable income for that year works out the same personal tax as if he had earned $118,500 directly, $28,982.50, of which $13,220.50 relates to his salary. The tax attributable to the retained slice is therefore $15,762.00, against an imputation credit of $13,580.00 already paid by the company, so he owes a further $2,182.00 in top-up tax when he draws it out, leaving him $32,738.00 in cash from that retained profit. Across both years, the company route nets Mark very close to what he would have received as a sole trader, the real difference being that $13,580 of tax was paid a year earlier than it would have been, and $1,500 of running costs were spent along the way.

Why the two structures end up close together

New Zealand's imputation system is designed so the same profit is not taxed twice. When a company distributes fully imputed profit, the shareholder is taxed on the grossed-up amount at their own marginal rate, then credited for the 28% the company already paid. If your marginal rate on that income is above 28%, you pay the difference when it is distributed. If it works out at exactly 28%, nothing further is owed. The only way a company creates a lasting saving, rather than a timing one, is if the profit stays retained and invested for a meaningful period, or if you eventually draw it out in a year when your personal tax rate is lower than it would otherwise have been, such as after you have wound down other income.

The market salary rule and the attribution rule

Inland Revenue does not allow a shareholder-employee to set an artificially low salary purely to push more profit into the lower 28% company rate. The leading authority is the 2011 Supreme Court decision in Penny and Hooper, where two surgeons paid themselves salaries well below a commercial rate for their own work; the Court found this was tax avoidance even though using a company was legitimate in itself. A separate attribution rule can tax retained company profit directly to the person who did the work in some personal-services businesses, broadly where most of the income comes from one client and most of the work is done by the shareholder personally. If most of your profit comes from your own labour rather than staff, capital or stock, keep your shareholder salary at a genuinely commercial level for the work involved.

What if my tax rate is below 28%?

This is where a company structure can actively cost you money rather than just deferring tax. If your marginal rate on the distributed profit is 10.5% or 17.5%, well below the 28% the company already paid, you do not get that excess imputation credit refunded as an individual. The company tax paid on that portion is simply higher than what you would have paid as a sole trader, and it stays paid. This matters most for lower-income owners and for anyone tempted to retain profit purely for the sake of it rather than because it is genuinely being reinvested.

Company running costs

A company adds obligations a sole trader does not have. You need annual financial statements, a separate company income tax return alongside your own personal return, and a yearly update to the Companies Office annual return, which itself carries a small fixed government fee. Total accounting costs commonly run from around $800 for a very simple company to $3,000 or more once payroll, GST and more complex accounts are involved. Enter your own expected figure rather than relying on the default.

What this calculator does not cover

  • ACC levies, which differ between self-employed classifications and PAYE salary, and are excluded here.
  • Trusts, which have their own 39% trustee tax rate and different rules again.
  • Partial distributions. This calculator shows either full retention or full later distribution of the retained profit, whereas real businesses often draw out some and keep some.
  • The attribution rule and other anti-avoidance provisions, which can apply in specific personal-services situations regardless of the numbers shown here.
  • Legal and asset-protection reasons for incorporating, which are a separate question from the tax outcome alone.

Who this calculator is for

This is for sole traders and contractors weighing up whether to incorporate, and for existing company owners checking whether the compliance cost of a company is actually being repaid in tax terms. It assumes your entire profit is earned through personal effort in the business, that any company profit not paid as salary is retained rather than partly distributed, and that a distribution, if modelled, happens in full and at your current tax bracket. Figures are rounded for display and are an estimate for planning, not a substitute for advice from an accountant familiar with your full situation.

Related calculators

Official NZ sources

This calculator is built from primary New Zealand sources. Always confirm current figures against the official source for your situation:

Frequently asked questions

Is it better to be a sole trader or set up a company in New Zealand?

It depends on your profit level and what you do with the money. As a sole trader, all your profit is taxed every year at your personal marginal rate, up to 39%. A company only pays 28% on the profit it keeps, so if you regularly leave money in the business to reinvest, a company can defer tax at a lower rate. If you draw out all the profit every year, the two structures end up close to level once imputation credits are applied, and the company adds compliance costs on top. There is no single right answer for everyone.

What tax rate does a company pay in New Zealand?

New Zealand companies pay a flat 28% income tax rate on their profit, regardless of size, under the Income Tax Act 2007. There are no company tax brackets. This compares with personal income tax, which is progressive and rises to 39% on income over $180,000.

Do I avoid tax by leaving profit in my company?

Not permanently. Leaving profit in a company only defers tax. While the profit stays in the company, it is taxed once at 28%. As soon as it is paid out to you as a dividend, imputation credits cover the 28% already paid, and you pay further tax on the difference if your personal marginal rate is above 28%. The saving is real while the money is retained and working in the business, but it is a timing benefit, not a permanent exemption, unless you are eventually taxed at a lower personal rate than when the profit was earned.

What is a reasonable shareholder salary?

Inland Revenue expects a working shareholder in a closely held company to be paid a commercially realistic salary for the work they actually do, comparable to what an unrelated employee would be paid for the same role. Setting an artificially low salary purely to shift income into the lower 28% company rate can be challenged as tax avoidance. The 2011 Supreme Court decision in Penny and Hooper is the leading case on this point, and a separate attribution rule can also tax retained profit directly to the working person in some personal-services businesses.

What happens when I pay myself the retained company profit later?

When retained profit is distributed as a fully imputed dividend, you include the grossed-up dividend, the cash amount plus the imputation credit, in your taxable income. You then get credit for the 28% company tax already paid. If your marginal rate on that income is above 28%, you pay the difference. If it is at or below 28%, no further tax is owed, but any imputation credit above your liability is not refunded to an individual.

Do I get money back if my tax rate is below 28%?

No. Individuals cannot get a cash refund of imputation credits that exceed their tax liability for the year. If your marginal rate on the distributed profit is below 28%, for example 10.5% or 17.5%, the excess credit is simply not refunded, which means retaining profit in a company and later drawing it all out can leave you worse off than being taxed directly as a sole trader at your lower personal rate.

How much does a company cost to run compared to being a sole trader?

A company adds costs a sole trader does not have: a Companies Office annual return, annual financial statements, and typically a separate company income tax return, on top of your own personal return. Depending on how straightforward the business is, this commonly runs from around $800 to $3,000 or more a year in accounting fees, plus a small fixed Companies Office annual return fee. Enter your own expected figure in the calculator.

When does incorporating actually save tax?

A company tends to help most when your profit is well above what you need to live on, so a meaningful amount is retained and taxed at 28% instead of your higher marginal rate, when that retained money is genuinely reinvested in the business rather than drawn out straight away, and when you expect to be in a lower tax bracket in future years when you eventually draw the money out, such as in retirement. It tends to help least when you draw out most of the profit every year at a marginal rate close to or below 28%, since the compliance costs then outweigh any tax timing benefit.