New Zealand companies, holding companies and trusts

Best for

Profit you can leave in the business rather than spend

What it saves

Retained profit is taxed at 28.000000000000004% instead of your top personal rate of up to 39%

What it costs

A company return, Companies Office annual return and bookkeeping, roughly 1,500 to 3,500 a year

Break even

Usually worth it once you can leave 40,000 or more a year in the company

How it is set up

1. Incorporate with the Companies Office and get the company its own IRD number.
2. Plan salary versus dividends each year, using imputation credits so profit is not taxed twice.
3. File the IR4 return by 7 July, or later with a tax agent.

Watch out: Money you take personally is still taxed to you. The saving is only on profit genuinely left in.

Best for

A rental property with losses, owned by one household

What it saves

Profit and loss pass straight to the owners, so ring fenced rental losses can sit against future gains cleanly

What it costs

A company to run plus an LTC election, and the return still lands on your personal IR3

Break even

Worth comparing for a single loss making rental, though personal ownership is simpler

How it is set up

1. Check the interest deductibility and ring fencing rules apply the same either way.
2. Make the LTC election with Inland Revenue before the year starts.
3. Get advice before moving an existing property in, because a sale to yourself can trigger bright-line.

Watch out: Selling a property into your own LTC restarts the bright-line clock and can create a taxable sale.

Best for

Protecting assets for children and separating family wealth from business risk

What it saves

No tax saving on income now that trusts pay 39%, but strong asset protection and succession control

What it costs

Trust deed, annual trustee return and proper minutes, roughly 1,500 to 3,000 a year

Break even

Sensible for asset protection and legacy, rarely for income tax alone

How it is set up

1. Be clear the goal is protection and succession, since trustee income is taxed at 39%.
2. Appoint an independent trustee and keep real records of decisions.
3. Gift or sell assets to the trust properly, at market value with documentation.

Watch out: Trustee income is taxed at the top 39% rate, so income is usually better distributed to beneficiaries on lower rates.

Best for

Starting out, testing an idea, or profits you spend as you earn

What it saves

Nothing to set up, and losses in early years can usually offset your wages

What it costs

An IR3 with a business income section, no separate company costs

Break even

Default choice until profit reliably tops the 33% band and you can leave money in

How it is set up

1. Tell Inland Revenue you are self employed and get set up in myIR.
2. Register for GST once turnover passes 60,000 in any 12 months.
3. Put aside roughly a third of profit for provisional tax.

Watch out: You and the business are the same legal person, so debts and claims land on you personally.

Best for

Savers on the 30%, 33% or 39% personal rate

What it saves

Fund earnings are taxed at a top rate of 28%, below the higher personal rates

What it costs

Fund fees, and your prescribed investor rate must be right

Break even

From the first dollar once your personal rate is 30% or more

How it is set up

1. Pick a PIE structure fund for savings outside KiwiSaver.
2. Set your prescribed investor rate, 10.5, 17.5 or 28.
3. Review the rate after any year your income changes band.

Watch out: Choosing too low a prescribed investor rate means a tax bill at year end, so check it annually.