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 is: sometimes yes, sometimes no. Here's how to work it out for your situation.
How Sole Trader Tax Works
As a sole trader, all business income is personal income. You pay tax on the same scale as an employee:
| 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% |
So if your tradie business makes $120,000 net profit, roughly $16,500 of that gets taxed at 33%. That adds up.
You also pay ACC earner levies on top (currently around $1.60 per $100 of liable income), plus employer ACC levies as a self-employed person.
How Company Tax Works
A New Zealand company pays a flat 28% corporate tax rate on profit. That's lower than the personal rate once you're earning over roughly $70,000.
But here's the catch: the money stays in the company. If you want to pay yourself, you draw a salary (taxed at personal PAYE rates) or take dividends (taxed at 33% with imputation credits offsetting the 28% already paid).
The real tax advantage of a company comes from retained profits — leaving money inside the company at 28% rather than pulling it out and paying up to 39% personally. This only works if you genuinely don't need all the profit for living expenses.
The Crossover Point: When a Company Makes Sense
As a rough guide, the tax savings become meaningful when your net business profit exceeds $70,000–$80,000 per year.
Below that, the compliance costs of running a company (typically $1,500–$3,000/year in accountant fees, plus annual returns) often outweigh the tax savings.
Example comparison at $100,000 net profit:
| Sole Trader | Company | |
|---|---|---|
| Tax paid on profit | ~$26,520 | $28,000 (28%) |
| Salary drawn ($70k) | Included above | ~$12,300 in PAYE |
| Retained in structure | $0 | ~$16,700 at 28% |
| Compliance cost | ~$800/yr | ~$2,500/yr |
The company structure doesn't automatically save tax here — but if you can leave $20,000+ per year inside the company and reinvest it in tools, vehicles, or savings, the 28% rate beats taking it out personally and paying 33%.
What a Company Gives You Beyond Tax
Limited liability is the big one. As a sole trader, your personal assets (home, savings, car) are at risk if your business is sued or goes into debt. A company separates your personal assets from business liability.
For tradies doing higher-risk or higher-value work — construction, electrical, structural — this protection matters. One uninsured claim on a $200,000 renovation job could cost you personally if you're a sole trader.
Credibility is another factor. Some commercial clients, project managers, and developers prefer to deal with a company rather than an individual. Having "Limited" in your name signals a certain level of business setup.
Profit splitting is possible but tightly controlled. IRD has rules against family member salary arrangements that aren't commercially justifiable, so don't go down this path without advice.
The Real Costs of Running a Company
People underestimate the admin burden of a company:
- Annual return to Companies Office (~$44/year)
- Separate company bank account (required)
- Company financial statements (not optional — even if small)
- More complex tax returns and GST
- Shareholder current account reconciliation
- Director obligations and record-keeping
- Accountant fees: typically $2,000–$4,000/year vs $800–$1,500 for sole trader
If you're not good with admin or hate dealing with paperwork, a company creates genuine overhead. Sole trader tax can still be managed simply with a good accountant.
When to Consider Making the Switch
Consider switching to a company structure when:
- Net profit consistently exceeds $80,000–$100,000
- You want liability protection for high-value work
- You can legitimately retain profits in the business (don't need to pull everything out to live)
- You're planning to bring in a business partner or shareholder
- You're building a business you may eventually sell (companies are easier to sell)
- A commercial client or contract requires it
Stay as a sole trader if: - You're below $70k net profit and all money goes to living expenses - You want minimal compliance burden - You're still building the business and not yet consistent
Key Takeaways
- Sole traders pay personal tax rates (up to 39%); companies pay a flat 28%
- The real saving comes from retaining profits inside the company — not just swapping structures
- Compliance costs for a company are real: budget $2,000–$3,500/year in additional accounting fees
- The crossover point is roughly $80,000–$100,000 in net profit where a company starts making financial sense
- Liability protection is often the bigger reason to switch than pure tax savings
Use our free Hourly Rate Calculator to check your actual net profit before deciding, and read our guide on How to Set Up as a Sole Trader in NZ if you're just getting started.
NZ Tradie Tools provides free calculators, templates, and guides for New Zealand tradies. This article is general information only — always get advice from a chartered accountant before changing your business structure.