Most tradies start as sole traders — it's simple, cheap, and gets you on the tools fast. But as your income grows, a question starts coming up: would a company structure save you tax?
The honest answer: sometimes yes, sometimes no. The company tax rate (28%) is lower than the top personal rate (39%), but the company structure only saves real money in specific circumstances — and it comes with genuine costs and obligations many tradies underestimate.
This guide cuts through the theory and gives you the numbers you need to make the right call for your situation.
How Sole Trader Tax Works in NZ
As a sole trader, all business profit is your personal income. It's taxed on exactly the same progressive scale as a salaried employee:
| Taxable income | Tax rate |
|---|---|
| Up to $14,000 | 10.5% |
| $14,001–$48,000 | 17.5% |
| $48,001–$70,000 | 30% |
| $70,001–$180,000 | 33% |
| Over $180,000 | 39% |
On top of income tax, sole traders also pay: - Earners' ACC levy (~1.39% of liable income) - Work levy (varies by trade — roofers pay more than electricians) - Working Safer levy (0.08%)
For a tradie earning $120,000 net profit, their combined income tax and ACC bill as a sole trader comes to roughly $34,000–$37,000 — around 29–31% effective rate.
The simplicity is real. One IRD number, one tax return (IR3), one set of accounts. Your accountant will charge $800–$1,500 per year. You don't need to separate personal and business finances (though you should anyway). And your losses can offset other personal income.
How Company Tax Works in NZ
A New Zealand company pays a flat 28% corporate income tax rate on net profit. That's lower than the personal rate once you're earning over roughly $70,000.
But here's what people miss: the money doesn't automatically become yours. It stays inside the company. To access it, you have two options:
Option A — Pay yourself a salary The company pays you PAYE at personal tax rates. The salary is a deductible expense for the company (reducing its 28% taxable profit), but you pay income tax on the salary at your marginal personal rate. Net result: similar tax to being a sole trader on the salary portion.
Option B — Take a dividend The company distributes after-tax profits as a dividend. Dividends carry imputation credits (reflecting the 28% company tax already paid). Depending on your personal tax rate, you may pay a top-up on the dividend, or pay nothing if the imputation credits cover your personal liability.
The real benefit of a company comes from leaving money inside it. Profits retained in the company are taxed at 28% only — not at your personal rate of 33%–39%. This is the "retained profit" advantage.
But — the retained money is locked in the company. You can't spend it personally. You can reinvest it in the business (tools, vehicles, a yard), or gradually draw it down over time, but it can't just become your household spending money without triggering personal tax.
The Numbers: Sole Trader vs Company at Different Income Levels
Here's a comparison of effective tax and ACC at different income levels. "Take-home" assumes all profit is taken as personal income in the sole trader case, and as a combination of salary + retained profit in the company case.
At $60,000 net profit:
| Sole Trader | Company | |
|---|---|---|
| Tax on profit | ~$11,200 | $16,800 (28%) |
| ACC | ~$1,800 | ~$1,100 (salary only) |
| Compliance cost | ~$900/yr | ~$2,500/yr |
| Take-home | ~$46,100 | ~$39,600 |
At $60k, the sole trader wins clearly. The company's compliance costs eat the tax advantage.
At $100,000 net profit:
| Sole Trader | Company | |
|---|---|---|
| Tax on profit | ~$26,520 | $28,000 (28%) on full profit |
| If salary = $70k | Same above | PAYE ~$12,300 on salary; 28% on retained $30k |
| Compliance cost | ~$1,200/yr | ~$2,800/yr |
| Best case company saving | — | ~$1,500–$3,000/yr |
At $100k, the company starts to make sense if you can genuinely leave $20,000–$30,000 inside the business. If you need all the money to live on, the savings largely disappear.
At $150,000+ net profit:
At this level, the personal tax rate hits 33–39% on a large portion of income. Retaining profits at 28% saves real money. A well-structured company with $40,000–$50,000 in retained profits per year can save $2,000–$5,000 annually in tax compared to taking everything personally.
What a Company Gives You Beyond Tax
1. Limited liability protection
This is often the bigger reason to incorporate than tax savings. As a sole trader, your personal assets — home, savings, car — are fully exposed if your business is sued or can't pay its debts. A company creates a legal separation between you (the director/shareholder) and the business.
For tradies doing higher-risk or higher-value work — structural construction, electrical, roofing on large buildings — this matters. One uninsured or underinsured claim on a $300,000 renovation job could cost you personally as a sole trader. A company doesn't make you immune to personal liability (directors can still be personally liable for certain things), but it's a meaningful layer of protection.
2. Business continuity and sale
A company is easier to sell or transfer ownership of than a sole trading business. If you ever want to bring in a business partner, investor, or employee-shareholder, a company structure makes this straightforward. It also separates the business's value from your personal identity, which matters if you're building something to eventually sell.
3. Credibility with larger clients
Some commercial clients — developers, project managers, government contractors — prefer to deal with a company rather than an individual. "Smith Building Ltd" signals a different level of business setup than "John Smith trading as Smith Building." This is a soft factor but worth noting if you're targeting commercial work.
4. Profit splitting (carefully)
In theory, you can pay family members salaries from a company. In practice, IRD has strict rules: salaries must be commercially justifiable (the person must actually do work that warrants that rate). Don't attempt this without proper accounting advice — IRD audits these arrangements.
The Real Costs of Running a Company
People consistently underestimate the compliance burden:
| Cost | Sole Trader | Company |
|---|---|---|
| Accountant (annual) | $800–$1,500 | $2,000–$4,000 |
| Companies Office annual return | $0 | $44/yr |
| Separate bank account | Optional | Required |
| Financial statements | Simple IR3 | Full accounts required |
| GST returns | Same | Same |
| Payroll (if paying yourself salary) | N/A | PAYE filing each payday |
| Director obligations | None | Legal duties apply |
Beyond the dollar cost, there's a time cost. You need to maintain a shareholder current account (tracking all money moving between you and the company), file payroll returns for your own salary, and keep company records. If you're not on top of this, your accountant ends up doing it and the bill grows.
If you hate admin, have a simple business, and are earning under $100k, a sole trader structure is genuinely better — you'll spend the "savings" on accounting fees and your own time.
When to Make the Switch
Strong case for incorporating:
- Net profit consistently above $80,000–$100,000 per year
- You can genuinely retain $20,000+ in the business each year (reinvest it, don't just leave it as a number)
- You're doing high-risk or high-value work where liability protection matters
- You want to bring in a business partner or employee shareholder
- You're building a business you may eventually sell
- You have a commercial client or contract that requires a company structure
Stay as a sole trader if:
- Net profit is below $70,000 and you draw out everything you earn
- Your work is straightforward with low liability exposure
- You want minimal compliance overhead
- You're still in early growth phase and income is variable
The Transition Process
If you decide to incorporate, the steps are:
- Register the company at companies.govt.nz (~$150 one-off)
- Get a company IRD number (myIR)
- Open a company bank account (kept separate from personal)
- Transfer contracts and assets to the company (there can be tax implications — get advice)
- Set up payroll if paying yourself a salary
- Tell your clients your new payment details (company name and bank account)
Your accountant should guide you through this — ideally before the end of the tax year so the structure is clean from the start of a new year. Don't try to switch mid-year without advice.
Frequently Asked Questions
Can I convert my sole trader business to a company without tax consequences? Transferring business assets (vehicles, tools, goodwill) to a new company can trigger income tax and GST. The way to minimise this is through a "going concern" transfer at tax book value — but this needs to be structured correctly with an accountant. Don't assume the switch is seamless.
Do I still pay personal income tax as a company director? Yes. If you take a salary from your company, you pay PAYE on that salary at personal rates. If you take dividends, you may pay a dividend tax top-up depending on your personal rate. The 28% company rate only applies to profit retained inside the company.
What's an imputation credit? When a company pays dividends from after-tax profits, it attaches imputation credits equal to the 28% company tax already paid. If your personal tax rate is 28%, the credits cover your entire dividend tax liability — you pay nothing extra. If your rate is 33%, you pay a 5% top-up. If your rate is 39%, you pay an 11% top-up.
Should I be paying myself a market salary as a director? IRD expects director salaries to be commercially justifiable — similar to what you'd pay an employee to do the same role. If you're doing the hands-on trade work plus all the business management, a salary in the range of $70,000–$100,000 is generally defensible. Paying yourself $30,000 to leave more in the company at 28% is the kind of thing IRD scrutinises.
What happens to my sole trader losses if I incorporate? Sole trader losses accumulated before incorporation generally can't be transferred to the company — they stay with you personally. This is another reason to get timing right and take advice before switching.
The Bottom Line
Sole trader vs company is not a pure tax question — it's a whole-of-business question. The right answer depends on your income level, how much you can actually retain, your liability risk, and how much admin overhead you're willing to carry.
As a rough guide: - Under $70,000 net profit: Stay sole trader. The compliance cost beats the tax saving. - $70,000–$100,000: The case is starting to build, especially if you can retain profits and have liability concerns. - Over $100,000 consistently: Talk to your accountant seriously. The tax saving is real.
Use our Hourly Rate Calculator to accurately calculate your net profit before making this decision, and consider Fastcrew for tracking job profitability so you always know where your business actually sits.
NZ Tradie Tools provides free calculators, templates, and guides for New Zealand tradies. This article is general information only — changing your business structure has significant tax and legal consequences. Always get advice from a chartered accountant before proceeding.