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. Side income is taxed at your marginal rate on top of your other income, so set money aside for the tax from every payment. GST registration is compulsory if your turnover from your taxable activity was at least $60,000 in the last 12 months, or you expect it to be at least $60,000 in the next 12 months. 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 (from 1 April 2025):
| Taxable income | Rate |
|---|---|
| $0 – $15,600 | 10.5% |
| $15,601 – $53,500 | 17.5% |
| $53,501 – $78,100 | 30% |
| $78,101 – $180,000 | 33% |
| $180,001+ | 39% |
Example: If you earn $75,000 from your job and $15,000 from freelancing, the freelance income sits on top — $3,100 of it (up to $78,100) is taxed at 30% and the remaining $11,900 at 33%. That’s $4,857 in tax on the freelance income.
3. Set Aside Tax From Every Payment
Open a separate savings account and transfer the share of each side hustle payment that matches your marginal rate (see the table below). This becomes your tax reserve account.
| Side income level | Tax rate to save |
|---|---|
| You earn under $53,500 from PAYE | Save 17.5% of side income |
| You earn $53,500–$78,100 from PAYE | Save 30% of side income |
| You earn over $78,100 from PAYE | Save 33% of side income (39% once combined income exceeds $180,000) |
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 in the last 12 months, and not expected to reach $60,000 in the next 12 months | Registration is optional |
| At least $60,000 in the last 12 months, or expected to be at least $60,000 in the next 12 months | 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., 2026/27) |
|---|---|
| Most self-employment income | 1.75 – 3.0% of liable income (Earners’ levy of 1.75% plus a Work levy that varies by industry classification) |
| Higher-risk occupations | 3 – 10%+ |
| Minimum levy | Check current figure with ACC — varies by 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: a logbook establishes business use %, which you can apply to actual costs or to IRD kilometre rates (2025-26 petrol Tier 1 rate: $1.20/km for the business part of the first 14,000 km the vehicle travels, then 37 cents). With no logbook the claim is limited to 25% of running costs |
| 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 (your own meals are usually private) |
| Client entertainment | 50% deductible when not completely business related |
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 | Cost (from the provider’s own page) | Used for |
|---|---|---|
| Hnry | 1% + GST of income paid into Hnry, capped at $1,500/year | Handling tax for self-employed people |
| Xero | $37 to $135/month excl. GST (Ignite to Ultimate plans) | Accounting for growing businesses |
| MYOB | $315 to $585/year + GST (Lite and Pro plans) | Small business accounting |
| Wave | Free | Simple bookkeeping |
Hnry calculates and pays income tax, GST, ACC levies and student loan repayments from income paid into its account, and its accountants file income tax and GST returns. Prices change, so check each provider’s pricing page.
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 (money set aside from every payment)
- 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