When you’re looking to start a business, one of the first things you need to do is choose a business structure that’s right for you. The three most common business structures are sole trader, partnership, and company. We’ll look at each one in turn, and you’ll see how “doing your taxes” changes according to the business structure you choose.


When you’re looking to start a business, one of the first things you need to do is choose a business structure that’s right for you. The three most common business structures are sole trader, partnership, and company. We’ll look at each one in turn, and you’ll see how “doing your taxes” changes according to the business structure you choose.

First up, meet Lisa! She’s just quit her job and decided to go into business as a sole trader. As a sole trader, Lisa runs her business by herself. She gets 100% of the business profits, and she’s personally responsible for all taxes and debts. You need to tell Inland Revenue when you start working for yourself. Lisa has an online account with us, so she simply sends us a secure email. Like anyone in business, Lisa must keep financial records, so she can work out her net profit at the end of the year. She has the “standard” 31 March balance date, which means her tax year runs from 1 April to 31 March.

As a sole trader, Lisa keeps the same IRD number she had as an employee. She only has to file one type of income tax return – the IR3. After the end of the tax year, she prepares her financial statements and completes her IR3 return. She must calculate income tax on her net profit. Lisa files her return online, as she finds it easier than filing paper returns. So, that’s sole traders!

The next business structure you may like to consider is the partnership. A partnership is formed when two or more people get together to run a business. Each partner contributes something to the partnership, and in return, receives a share of any partnership profits or losses. Each partner is personally responsible for all partnership debts. That means if the partnership can’t pay, the creditor can approach any of the partners individually to collect the money owed.

Here are Jamie and Denise. They’ve decided to form a partnership to design websites. A partnership has its own IRD number. Denise downloads the IR 596 application form from Inland Revenue’s website, fills it out, and posts it to Inland Revenue. After the end of the tax year, the partners prepare the partnership’s financial statements.
During the year the partnership made a profit of a $100,000. As Jamie and Denise agreed to split the profits 50/50, they each receive $50,000. Partnerships file an IR7 income tax return, showing the profit or loss for the year and how it’s split between the partners. But partnerships don’t pay income tax. The partners do. Jamie and Denise each complete an IR3 return showing they received $50,000 from the partnership as their share of the profit. And that’s partnerships!

The next business structure we’ll discuss is the company. Leeann and John decide a company structure is best for their antique business. A company is a separate legal entity. A company can buy assets, and borrow money in its own name. Leeann and John contact the Companies Office to register their company, and get an IRD number at the same time. When people form a company, they each get shares, usually in proportion to the money they contribute. You’ve probably noticed that most companies have “Limited” after their name. That means if the company gets into financial difficulty, a shareholder’s personal liability is limited to their share in the company.

In its first year in business, Antique Chic Limited makes a profit of $150,000. During the year Antique Chic pays Leeann and John $40,000 each, leaving the company with a profit of $70,000. Unlike partnerships, companies pay income tax. Antique Chic files an IR4 return, declaring a profit of $70,000, and Leeann and John each file an IR3 return showing income from the company of $40,000. The company also files an annual return with the Companies Office. And that’s companies!

You’ve now heard about the three most common business structures. No matter which structure you choose for your business, you’ll need to file income tax returns. You pay income tax on your net profit for the year. You can find out more about payment due dates in our video “Income and provisional tax”. If you have the standard 31 March balance date you need to file your returns by 7 July, unless you or your tax agent has an extension of time arrangement with us. Please make sure you file your returns by the due date. If you’re late, you may have to pay a late-filing penalty. Your structure will have an impact on other aspects of your business too, not just income tax.

All businesses with a turnover of more than $60,000 have to register for GST and file GST returns. Please check out our video “Registering for GST” for more information. If you’re going to employ staff you will also need to register as an employer.

When you’re in business for yourself, there’s a lot to think about. But don’t worry. You’re not on your own. Our website can help you every step of the way. Our “Tool for business” has everything you need in one convenient place. Once you have set up your myIR account you can send us secure emails and file your returns online. It’s quick and secure, and you can do it from anywhere at any time. Go to business.govt.nz to access further tools and resources for starting in business.