Understanding the Different Types of Self-Employed Income

Whether you’re freelancing, contracting, running a small business, or earning rental income, it’s crucial to identify your income streams and their respective tax implications. This guide will walk you through the various types of self-employed income, including Self-employed Income, Schedular Payments, Rental Income, and Zero-rated Supplies, helping you to identify and navigate your tax obligations with confidence.

More than 1 in 14 employed New Zealanders are working two or more jobs, so if you have more than one source of income you are not alone. For this reason we have included common non-self-employed income types and how the might effect your self-employed income.

Here’s a full list of the income types if you’d like to skip ahead:

• Self-employed Income
• Schedular Payments
• Rental Income
• Zero-rated Supplies

Non-self-employed income types:

• Salary and Wages
• New Zealand Interest
• Benefits
• Pension
• Student allowance

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Self-employed Income

Self-employed income is the money you earn directly from your customer or client, where you’re not employed by someone else. This type of income has not had any tax taken out if it before you receive the money.

Common professions: This can include freelancers, consultants, tradespeople, and small business owners across various industries such as graphic design, writing, plumbing, or retail.

Tax obligations:

• File an IR3 individual income tax return
• Register for GST and file GST returns (if your income is over $60,000 per year)
• Pay ACC (you’re invoiced by ACC once a year)
• Pay provisional tax (only from your second year onward and if you made a profit over $5,000 in your first year)
• Claim business expenses and depreciate business assets (optional)
• Keep receipts for expenses (for expenses over $200).

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Schedular Payments

Schedular payments (also known as withholding tax payments) are specific types of payments made to contractors who perform certain services. The payer (often the business that hires you) deducts withholding tax from these payments before you receive them. Unlike salary or wage income you still have to pay your own GST, ACC and file an income tax return.

Being paid schedular payments is something that you would have set up with your employer. If you’re unsure if you get paid this type of income you can check your payslip or with your employer.

Common professions: Industries such as construction, real estate, agriculture, or entertainment often use schedular payments. For example, a freelance graphic designer working for an ad agency might also receive schedular payments.

Tax obligations:

• File an IR3 individual income tax return
• Register for GST and file GST returns (if your income is over $60,000 per year)
• Pay ACC (you’re invoiced by ACC once a year)
• Claim business expenses and depreciate business assets (optional)
• Keep receipts for expenses (for expenses over $200).

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Rental Income

Rental income is the revenue you earn from renting out property you own, such as houses, apartments, or commercial spaces.

Common Professions: This is common among property investors or individuals who own and rent out residential or commercial properties. Common examples include a flatmates in your home, rental properties, borders, payments from short-term rental services such as AirBnb or Bookabach.

Tax obligations:

• File an IR3 individual income tax return
• File an IR3R rental income return
• Register for GST and file GST returns (if your income is from a short-term rental and over $60,000 per year)
• Pay provisional tax (only from your second year onward and if you made a profit over $5,000 in your first year)
• Claim business expenses and depreciate business assets (optional)
• Keep receipts for expenses (for expenses over $200).

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Zero-rated Supplies

Zero-rated supplies refer to goods and services that are subject to GST (Goods and Services Tax) but at a rate of 0%. This means while you don’t charge GST on these goods or services, you can still claim back the GST on your related expenses. Zero-rated supplies is usually income you get paid from an overseas client or customer. This type of income is similar to Self-employed Income but the key difference is that it has no GST.

Common examples: This often applies to services performed outside of NZ, internet sales to overseas customers, services to overseas customers and exported goods.

Tax obligations:

• File an IR3 individual income tax return
• Register for GST and file GST returns (if your income is over $60,000 per year)
• Pay ACC (you’re invoiced by ACC once a year)
• Pay provisional tax (only from your second year onward and if you made a profit over $5,000 in your first year)
• Claim business expenses and depreciate business assets (optional)
• Keep receipts for expenses (for expenses over $200).

Non-self-employed Income Types

While many New Zealanders earn income through self-employment, it’s essential to understand the various types of non-self-employed income and their tax implications. Let’s explore common income types like Salary and Wages, New Zealand Interest, Benefits, Pension, and Student Allowance. Understanding these can help you manage your overall financial picture more effectively.

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Salary and Wages

Student Allowance

The Student Allowance is a weekly payment to help students with living expenses while studying.

Common professions: This applies to students who meet certain criteria, typically those enrolled full-time in tertiary education.

Tax obligations: The Student Allowance is not taxable. You do not have to pay tax on this income, and it doesn’t need to be declared in a tax return.

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