A side hustle — whether freelancing, selling on Trade Me, renting a room, or running a small business — creates tax obligations that your employer doesn’t manage for you. Getting this right from day one saves a nasty surprise at the end of the financial year.
Any income earned outside of PAYE employment must be declared to IRD. Set aside 25–33% of every side income payment for tax. Register for GST once you expect your annual turnover to exceed $60,000. Register your self-employment with IRD and pay ACC levies on self-employment income. File an IR3 return each year once you have self-employment income.
1. Do You Need to Register with IRD?
Yes — as soon as you have income outside of PAYE, you are self-employed in IRD’s eyes.
IRD registration steps:
- Log in to myIR at ird.govt.nz
- Add an “income type” for self-employment or business income
- No separate business registration is required for sole traders — your IRD number is sufficient
If you’re operating as a company rather than a sole trader, you need to register the company with the Companies Office (separate to IRD registration).
2. How Much Tax Do You Owe on Side Income?
Side income is taxed at your marginal income tax rate — added on top of your existing employment income.
NZ income tax rates 2026:
| Taxable income | Rate |
|---|---|
| $0 – $14,000 | 10.5% |
| $14,001 – $48,000 | 17.5% |
| $48,001 – $70,000 | 30% |
| $70,001 – $180,000 | 33% |
| $180,001+ | 39% |
Example: If you earn $75,000 from your job and $15,000 from freelancing, the freelance income is taxed at 33% (because it’s the next $15,000 above $70,000). That’s $4,950 in tax.
3. Set Aside Tax From Every Payment
Open a separate savings account and transfer 25–33% of every side hustle payment you receive. This becomes your tax reserve account.
| Side income level | Tax rate to save |
|---|---|
| You earn under $48,000 from PAYE | Save 17.5% of side income |
| You earn $48,000–$70,000 from PAYE | Save 30% of side income |
| You earn over $70,000 from PAYE | Save 33% of side income |
Don’t spend your tax reserve. It belongs to IRD.
4. Provisional Tax — When It Kicks In
If your total residual income tax (RIT) for the year exceeds $5,000, you must pay provisional tax.
- Year 1: You file an IR3, pay the residual tax bill, and may be registered for provisional tax in Year 2
- Year 2+: IRD calculates a provisional tax estimate based on last year’s RIT and you pay in three instalments during the year (typically August, January, May)
Provisional tax is not an extra tax — it’s prepaying the year’s tax in advance. The amounts are the same; it’s just the timing that changes.
5. GST — When to Register
| Annual turnover | GST obligation |
|---|---|
| Under $60,000 | Registration is optional |
| $60,000 or more (expected) | Registration is compulsory |
Once registered, you:
- Add 15% GST to your invoices (so a $100 service becomes $115)
- File GST returns (monthly, two-monthly, or six-monthly)
- Claim GST back on business purchases
If you mostly sell to businesses: Register for GST early — it makes you look professional and lets you claim GST back on your costs.
If you mostly sell to consumers: Registering before $60,000 means your prices go up 15% for customers (or your margins drop 13% if you absorb it).
6. ACC Levy on Self-Employment Income
ACC charges a levy on self-employment income to cover the cost of work-related injuries.
| Category | Rate (approx., 2026) |
|---|---|
| Most self-employment income | 1.6 – 2.5% of liable income |
| Higher-risk occupations | 3 – 10%+ |
| Minimum levy | $177/year |
ACC levy is not optional. It’s assessed alongside your income tax return. Budget for it.
ACC also offers a CoverPlus Extra policy (CPX) for self-employed people — this lets you choose a specific level of weekly compensation if you can’t work, rather than the default (which is based on your last year’s income).
7. Business Expenses You Can Deduct
Self-employment income can be reduced by genuine business expenses before tax is calculated:
| Expense | Deductible? |
|---|---|
| Equipment and tools | Yes (may be depreciated over time) |
| Home office (portion of rent, power) | Yes — based on floor area %, typically 10–20% of home costs |
| Vehicle (portion used for work) | Yes — logbook required to establish business use %; OR 82c/km for first 14,000km |
| Software subscriptions | Yes (if work-related) |
| Professional development / courses | Yes (if related to current business) |
| Phone (work portion) | Yes |
| Accounting / bookkeeping fees | Yes |
| Travel (business-related) | Yes |
| Client entertainment | Yes — up to 50% of meal costs |
Keep receipts for everything.
8. Accounting Software
For most small side hustles, a spreadsheet works fine. Once you’re earning $20,000+/year from self-employment, consider:
| Tool | Monthly cost | Best for |
|---|---|---|
| Hnry | 1% of self-employment income (min $2/invoice) | Freelancers who want tax handled automatically |
| Xero | $32 – $85/month | Growing businesses |
| MYOB | $27 – $65/month | NZ-specific payroll |
| Wave | Free | Simple bookkeeping |
Hnry is popular with NZ freelancers — they deduct income tax, ACC, and GST from every payment automatically, so you never have a tax bill.
9. Separate Business Banking
Open a separate bank account for your side hustle from day one. Run all business income and expenses through it. This makes:
- Tax return preparation much easier
- GST return preparation simple
- Expense tracking automatic
- Business profitability clearer
10. Filing Your Annual Return (IR3)
If you have self-employment income, you must file an IR3 (individual income return) each year. IRD’s filing deadline is 7 July for most individuals, or 31 March (the following year) if you use a tax agent.
Final Checklist Summary
- Registered self-employment income with IRD via myIR
- Tax reserve account open (25–33% of every payment saved)
- GST registration status assessed and actioned if required
- ACC levy budgeted for
- Business expense tracking system in place
- Separate bank account set up for business
- Annual IR3 filing date noted (7 July)
- Provisional tax obligations understood (if tax will exceed $5,000)
- Accounting software or system chosen