Trading as a Business in NZ: Structure, Paying Yourself & Tax

The short version

• You probably won't pay yourself a weekly wage. As a sole trader you take drawings, which are not a deductible business expense and have no PAYE deducted.
• A structure doesn't decide whether your trading is taxable. That's decided by what you're doing and why. Changing the wrapper doesn't change the activity.
• Sole trader: simplest. Profit is taxed at your individual marginal rates, on your IR3. Losses can offset your other income.
• Company: pays 28% on its profit and files an IR4. But that 28% is usually a deferral, not a saving — getting the money out to yourself triggers a top-up to your marginal rate. Losses are stuck inside the company.
• Look-through company (LTC): a company legally, taxed like a partnership — profits and losses flow through to owners.
• The trap nobody mentions: a genuine capital gain sitting inside a company generally can't be paid out tax-free as a dividend — only on liquidation.
• Structure choice depends on your numbers, your risk and your other income. This is the one area where you should genuinely pay an accountant before you do anything.

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Someone searched for this recently, almost word for word: "if I register a business for my day trading, how will this work — payouts, tax, weekly wages?"

It's a great question, and the framing tells you exactly where the confusion is. Most people picture a business like a job: the company earns money, then pays you a wage every Thursday. For a trading business in New Zealand, that's usually not how it works. Here's the honest mechanics.

Before we start: this is general information about how the structures work, not a recommendation about which one you should use. Structure choice depends on your income, your other earnings, your risk exposure and your plans — and getting it wrong is expensive and annoying to unwind. Talk to a chartered accountant about your actual situation. This article is to help you have a better-informed conversation with them, not to replace it.

First: a structure doesn't make trading profits taxable or tax-free

This is the misconception worth killing immediately, because people go looking for a structure hoping it changes the tax outcome.

In New Zealand there's no capital gains tax, but if you're trading — buying with the intention of selling for a profit — your gains are income, taxed at your marginal rate. That's true whether you trade in your own name, through a company, or through an LTC. What determines the treatment is the nature of the activity and your purpose, not the wrapper around it.

If anything, incorporating makes the "you're running a business" conclusion easier for IRD to reach, not harder. So don't set up a company hoping to look less like a trader — see how IRD decides trader vs investor for what actually drives that test.

Sole trader: the default, and how you actually get paid

If you just start trading and declaring it, you're a sole trader. There's no registration step to "become" one — you're using your own IRD number, and your trading profit goes on your IR3.

Here's the part that answers the original question. You don't pay yourself a wage. IRD's guidance is blunt: a sole trader doesn't pay themselves a salary — you take money out of the business when you need it, and those takings are called drawings.

Two consequences that surprise people:

• Drawings are not a deductible expense. You can't reduce your taxable profit by "paying yourself". Your tax is on the profit the business made, whether you took the cash out or left it in your trading account.
• There's no PAYE. Nothing is withheld. You pay the tax yourself, and once your tax bill gets big enough you'll move into provisional tax — paying in instalments during the year.

So "weekly wages" as a sole trader really means: transfer yourself money whenever you like, and separately make sure the tax is set aside. The transfer is not a tax event. The profit is.

Company: the 28% that isn't what it looks like

A company is a separate legal entity. It files its own return (an IR4) and pays tax at the company rate of 28%.

At a glance that looks great next to a 39% top personal rate. But look at what happens when you want the money.

Getting money out of a company

There are two main routes, and they work differently.

1. A shareholder-employee salary. If you work in your own company, you can be paid as a shareholder-employee. New Zealand gives close companies some flexibility here: the salary can be paid regularly with PAYE deducted, or as an end-of-year shareholder salary with no tax deducted (in which case you'd generally be paying provisional tax on it yourself), or a combination of both. A salary is deductible to the company, and taxed to you at your individual rates.

2. A dividend. The company pays its 28%, then distributes profit to you. To prevent the same profit being taxed twice, the dividend carries an imputation credit for tax the company already paid — a company can attach up to 28 cents of credit per $1 of gross dividend. But if your personal marginal rate is 33% or 39%, the credit only covers you to 28% — you top up the difference personally.

That's the crux: for a trader who needs to live off the trading income, the 28% company rate is largely a timing difference, not a discount. You defer the top-up until you extract the money. It's genuinely useful if you're reinvesting profits and leaving them in the business. It's much less useful if you're withdrawing everything to live on.

The two company traps that matter most to traders

Losses get stuck. This is the big one. As a sole trader, a trading loss can offset your other income — your salary, for instance. Inside a company, losses stay in the company, carry forward there, and depend on continuity rules being met. Given how normal losing years are in trading, a structure that traps losses away from your other income is a real cost. (See loss carry-forward for NZ traders.)

Capital gains can get locked in. If your company makes a genuine capital gain — one that isn't taxable — you'd think you could just pay it out. Generally you can't, not tax-free. Distributing a capital gain to shareholders is treated as a taxable dividend unless the distribution happens as part of liquidating the company. So the gain can end up locked in the company until you wind it up. This one catches people badly, and it's precisely why you want advice before incorporating, not after.

Look-through companies (LTC)

An LTC is a middle path: a real company legally, but for income tax purposes it's treated like a partnership. Profits and losses flow through to the owners, who pay tax at their own rates — so losses can reach your other income the way a sole trader's can. An LTC files an income tax return like an ordinary company, and reports the flow-through amounts to owners (form IR7L).

There's a detail here that matters enormously for traders. Under the LTC rules, an owner is treated as carrying on the activities, and having the status, intentions and purposes, of the LTC. In plain terms: you can't use an LTC as a shield between you and what the entity is doing. If the LTC is trading, that's you trading, with your intentions attached.

LTCs have eligibility criteria you have to meet and keep meeting. Again — accountant.

ACC levies still apply

Easy to forget, and it's a real cost. ACC levies are separate from income tax and are invoiced after you file.

If you're self-employed and actively generating the income, you'll pay ACC levies as a self-employed person and ACC invoices you directly. There are multiple components — an earners' levy, a work levy, and a working safer levy — and what you pay depends on your liable earnings and your industry classification, so it varies by person. If you're paid a salary, the earners' portion comes out through PAYE instead. And a genuinely passive investor in an LTC doesn't pay ACC on that income.

Because the work levy depends on your classification, don't assume a number — check with ACC or your accountant.

Provisional tax follows you either way

Whichever structure you land on, once your residual income tax passes the threshold you're into provisional tax: paying in instalments during the year rather than one lump at the end. For a company that's the company paying; for a sole trader it's you. Shareholder-employees have some flexibility to have provisional obligations handled through the company.

This is the single most common cash-flow shock for newly profitable traders — your first big year can land a tax bill and the first instalments of the next year's provisional tax at nearly the same time. Provisional tax for NZ traders covers the mechanics, and the free tax calculator will show you the rough shape of it.

Choosing between them

I'm deliberately not going to tell you, because the honest answer depends on things this article can't see: how much you earn, whether you have other income to absorb losses, whether you're withdrawing or reinvesting, what your liability exposure looks like, and what you plan to do in five years.

What I'd say is this. Most traders start as sole traders because it's simple and losses can offset other income. Companies and LTCs start earning their complexity when there's meaningful profit being retained, other people involved, or genuine liability concerns. And the cost of a couple of hours with a chartered accountant is trivial next to the cost of unwinding the wrong structure — or discovering a locked-in capital gain years later.

Go in with good records and a clear picture of your numbers, and that conversation gets much cheaper. TradeLog NZ keeps your trades converted to NZD at RBNZ rates and your tax position current year-round, which is exactly what your accountant will ask for.

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Do I pay myself a wage if I trade as a sole trader in NZ?

No. A sole trader doesn't pay themselves a salary or wage — you take money out of the business as drawings when you need it. Drawings are not a deductible business expense and no PAYE is deducted from them. You're taxed on the profit your trading business made for the year, regardless of how much you actually withdrew, and you declare that profit on your IR3.

Should I set up a company for my day trading in New Zealand?

It depends entirely on your circumstances, and it's worth paying an accountant to answer properly. A company pays 28% on profit, but when you take that money out as a dividend you generally top up to your own marginal rate if you're on 33% or 39% — so the lower rate is often a deferral rather than a saving. Companies also trap trading losses inside the company instead of letting them offset your other income, which matters a lot in a loss-making year.

Does trading through a company mean my profits aren't taxable?

No. Whether trading gains are taxable is determined by the nature and purpose of the activity, not the structure you trade through. New Zealand has no capital gains tax, but active trading profits are income wherever they're earned. Incorporating doesn't make trading profits tax-free — and if anything it makes the "carrying on a business" conclusion easier to reach.

What is a look-through company and is it good for traders?

An LTC is a company that's treated like a partnership for income tax, so profits and losses flow through to the owners and are taxed at their personal rates. That means losses can offset other income, unlike an ordinary company. Importantly, an LTC owner is treated as carrying on the activities and having the status, intentions and purposes of the LTC — so it isn't a shield between you and the trading activity. LTCs have eligibility criteria, so get advice before electing.

Do I pay ACC levies on trading income in NZ?

If you're self-employed and actively generating the income, yes — ACC invoices you directly after you file, and the levies (earners', work and working safer) are based on your liable earnings and your industry classification. If you're paid a salary through a company, the earners' portion is deducted through PAYE. A genuinely passive investor in a look-through company doesn't pay ACC on that income. Because the work levy depends on classification, check your actual rate with ACC or your accountant.

Can I get a capital gain out of my trading company tax-free?

Usually not as an ordinary dividend. In New Zealand, distributing a capital gain to shareholders is generally treated as a taxable dividend unless it's made as part of liquidating the company. That means a non-taxable gain can effectively be locked inside the company until it's wound up. It's one of the strongest reasons to get structuring advice before you incorporate rather than afterwards.

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This article is general information only and does not constitute tax, legal or financial advice. Business structuring has significant and often hard-to-reverse tax, legal and liability consequences, and the right answer differs for every person. Rates, thresholds and rules change. You should discuss your own circumstances with a chartered accountant or tax adviser before choosing or changing a structure — TradeLog NZ accepts no liability for decisions made on the basis of this article. For official guidance see IRD, business.govt.nz and ACC.