Choosing the right business or wealth structure in New Zealand has major tax and legal implications. Sole traders, companies, and family trusts each have different tax rates, compliance requirements, asset protection, and income-splitting possibilities. This comparison helps you understand which structure fits your situation.
Sole traders are simple but taxed at personal rates (up to 39%). Companies pay 28% on retained profit — ideal when you can leave money in the business. Trusts (now at 39% on retained income) are best for asset protection and income splitting to lower-rate beneficiaries, not for tax rate arbitrage. Most NZ business owners use a combination: company for operations, trust as company shareholder for asset protection and succession. Get tailored advice — the right structure depends on your income level, family situation, and goals.
Side-by-Side Comparison
| Feature | Sole trader | Company | Family trust |
|---|---|---|---|
| Income tax rate | Personal rates (10.5%–39%) | 28% on retained profit | 39% retained; beneficiary rate if distributed |
| Setup cost | Nil | ~$200 (Companies Office) | $1,500–$3,000 (lawyer) |
| Annual compliance cost | $500–$1,500 | $2,000–$5,000 | $1,500–$3,000 |
| Personal liability | Unlimited | Limited | Depends on structure |
| Income splitting | None | With spouse/family shareholders | With beneficiaries |
| Loss use | Against personal income | Carried forward (or LTC flow-through) | Distributed to beneficiaries |
| Asset protection | None | Partial (if structured well) | Strong |
| Estate planning | Poor | Moderate | Strong |
| IRD return | IR3 | IR4 | IR6 |
| GST | Same rules | Same rules | Same rules |
Sole Trader
Best for: Businesses with profit under $70,000; early-stage ventures; low-complexity operations; those wanting minimal compliance.
Tax: All profit taxed at personal rates. The first $14,000 at 10.5%, up to $180,000 at 33%, and over $180,000 at 39%.
Pros:
- No setup cost
- Lowest accounting fees
- Losses immediately offset other income
- No separate tax return (included in personal IR3)
Cons:
- Unlimited personal liability
- No income splitting
- Higher marginal rates at higher incomes
Company
Best for: Businesses with retained profit above $70,000; owner-operators wanting to accumulate wealth within the business; those with family shareholders.
Tax: 28% on profit retained. If paid out as salary: personal rates. If paid as imputed dividend: top-up to personal rate.
Pros:
- 28% rate on retained profit (saves 5–11% vs personal rates for $70k–$180k+ income)
- Limited liability
- Income splitting via dividends to lower-rate shareholders
- Easier to bring in partners or sell equity
Cons:
- $2,000–$5,000/year in accounting
- 28% rate is higher than personal rates below $48,000
- More compliance (payroll, IR4, shareholder accounts)
Family Trust
Best for: Asset protection (protecting family home from business creditors); succession planning (transferring assets across generations); income splitting to beneficiaries; holding the family home while children grow up.
Tax: 39% on retained income (since 2024). Distributions taxed at beneficiary rates. Can be efficient if beneficiaries are on 17.5% or 30% rates.
Pros:
- Strong asset protection (assets owned by trust, not by you personally)
- Excellent for estate planning and succession
- Income splitting to lower-rate beneficiaries
- Protects assets from relationship property claims (if settled before relationship)
Cons:
- 39% on retained income (no longer tax-efficient to accumulate inside trust)
- High setup cost ($1,500–$3,000 with a lawyer)
- Annual compliance (IR6, accountant, trustee resolutions)
- Complexity — trustees have fiduciary duties
The Common NZ Strategy: Company + Trust
A widely used NZ structure combines both:
- Operating company: Runs the business, earns income, pays 28% tax
- Family trust: Owns shares in the company
- Distributions: Company pays dividends to the trust; trust distributes to beneficiaries at their rates
This separates:
- Business liability (company shields you from trading debts)
- Asset ownership (trust owns the company shares — protected from personal creditors)
- Income distribution (trust can direct dividends to low-rate beneficiaries)
Example outcome:
- Company earns $200,000 profit
- Company pays 28% tax on retained portion
- Remaining profit paid as fully imputed dividend to trust
- Trust distributes to spouse (17.5% rate) and children (subject to minor beneficiary rules)
- Effective tax rate on distributed income: significantly below 39%
Frequently Asked Questions
Do I need all three structures?
No. Many NZ business owners operate perfectly well as sole traders throughout their career. The question is whether the tax savings and asset protection benefits justify the compliance cost of more complex structures.
At what income level should I consider a company?
When your business profit consistently exceeds $70,000–$100,000 and you can retain at least $30,000 inside the company, the 28% vs 33%+ tax saving generally exceeds the extra compliance cost.
Should I put my house in a family trust?
Putting your home in a trust for asset protection is a common strategy — but the law is complex (relationship property, settlor’s ability to access the house, trust deed terms). Always get legal and tax advice before transferring your home to a trust.