Tradies and builders hit a predictable set of New Zealand tax issues: GST on jobs and materials, claiming tools, vehicles and use of home, withholding on subcontractors, and provisional tax that lurches with a busy or quiet year. Handled well, these are routine; handled late, they become expensive surprises.
Tax issues tradies hit
The trades share a tax profile. Income is lumpy, costs are real and physical, work often flows through subcontractors, and a strong year can trigger a provisional-tax bill that lands in a quiet one. The common pinch points are the same whether you are a builder, sparky, plumber, painter or chippie.
- GST on materials and labour once you pass the $60,000 registration threshold.
- Deductions for tools, vehicle, protective gear and use of home.
- Subcontractors and the withholding rules that can apply to payments you make and receive.
- Provisional tax that swings with income and catches people out the year after a good run.
None of these are exotic. They just need a system so they do not pile up at year-end.
What makes the trades distinctive is the combination, not any single rule. A builder might be invoicing big jobs with GST, paying subbies under withholding, depreciating a ute, claiming a home office for quoting, and carrying a provisional-tax obligation from last year's strong run, all at once. Each piece is manageable; the value of getting organised is keeping them from colliding at year-end.
GST on materials and labour
Once your turnover tops $60,000 in a 12-month period you must register for GST and charge 15% on your jobs, both labour and materials. The upside is that you claim back the GST on everything you buy for the work: timber, fittings, plant hire, tools and consumables.
For most established tradies registration is a clear win, because you are buying a lot of GST-bearing materials and reclaiming the GST on them. Charge GST on the full job, claim it on the inputs, and pay IRD the difference. The key discipline is setting the GST aside as you collect it, rather than spending it and scrambling at filing time. Most tradies file two-monthly, which keeps the payments manageable and the picture current.
One practical tip for variable trade income: most tradies sit comfortably on two-monthly GST filing, which keeps returns frequent enough to stay current without the workload of monthly. If you are in a capital-heavy phase, buying a vehicle or major plant, monthly filing can pull the GST refund forward and help fund the purchase. The basics never change, though: charge 15% on the whole job, claim it on your inputs, and bank the GST as you collect it.
Tools, vehicles and use-of-home
Trades are deduction-rich, and claiming properly is where a good accountant pays for itself.
- Tools and equipment — smaller items are deductible outright; larger gear is depreciated over time. Keep the receipts.
- Vehicle — a ute or van used for work has its running costs claimed by logbook (business-use percentage) or the kilometre-rate method. Private use is excluded, so a logbook protects the claim.
- Protective gear and clothing — hi-vis, boots, hard hats and other safety equipment are deductible; ordinary clothing is not.
- Use of home — if you run the business from home (quoting, invoicing, storing tools), a fair share of power, internet, rates and other costs is deductible based on the area and time used.
The recurring mistake is missing the small, frequent costs across a year. They add up, and a simple capture habit (photograph the receipt, or use an app that feeds your accounting) keeps the deductions from leaking away.
The line between an outright deduction and depreciation is just the cost of the item. Lower-value tools are written off in the year you buy them; higher-value equipment is depreciated over its useful life, spreading the deduction across several years. Either way the deduction is real, so the habit that matters is keeping every receipt, because a deduction you cannot evidence is a deduction you lose if IRD ever asks.
Subcontractors and withholding
Trades run on subcontractors, and that brings withholding into play. Payments to contractors in certain activities can be subject to schedular payment withholding, where tax is deducted at source from the contractor's pay and sent to IRD. If you engage subbies, you may have an obligation to withhold; if you are paid as a subbie, tax may be withheld from you, which actually helps by pre-paying some of your tax.
Getting this right protects everyone. Keep proper records of who you pay, confirm whether withholding applies, and make sure your subbies are genuinely contractors rather than employees in disguise, because misclassifying a worker creates PAYE and ACC liabilities you did not budget for. When in doubt on a payment, it is cheaper to check than to correct.
A worked example helps. If you hire a subbie in a category subject to schedular payments, you may need to withhold tax from what you pay them and pass it to IRD, and issue the right records. If you are the subbie, the head contractor may withhold from you, which actually pre-pays some of your tax and softens your year-end. The danger zone is treating a regular, controlled worker as a contractor when they look like an employee, which back-dates PAYE, KiwiSaver and ACC onto you.
Provisional tax for variable income
Provisional tax is the classic tradie trap. After a year where your residual income tax tops $5,000, you start paying the next year's tax in instalments based on the last result. So a bumper year creates provisional-tax obligations that fall due even if the new year is slower, squeezing cashflow exactly when work has dried up.
The fixes are practical: set money aside through the busy months, use the safe-harbour rules where they apply to avoid interest, re-estimate when a year is clearly down, and consider tax pooling to smooth the timing and trim use-of-money interest. Planned ahead, provisional tax is just a payment schedule; ignored, it is a nasty surprise.
| Trap | Plain-English fix |
|---|---|
| Spending the GST you collected | Bank GST separately as you invoice |
| Missing small tool and vehicle costs | Capture every receipt as you go |
| Provisional tax after a big year | Set money aside; use safe-harbour or pooling |
| Subbie withholding overlooked | Check withholding on each payment |
For a trade with genuinely unpredictable income, the AIM method is worth knowing about: your accounting software calculates small provisional-tax payments from your actual results through the year, so you only pay when you are actually making profit. That can be far kinder to cashflow than the standard option, which bases this year's instalments on last year's good run regardless of how the current year is going.
Book a free review
We work with tradies and builders across New Zealand and know the rhythm of the work: lumpy income, heavy materials, subbies and a provisional-tax bill that times itself badly. We will get your GST and deductions clean, sort the subcontractor side, and put a provisional-tax plan in place so a good year does not bite you in the next one. Fixed fees, plain English, and Xero-friendly.
Book a free 20-minute review and we will show you exactly where the money and the risk are.
This is general information only, not personalised tax advice. Confirm your situation with us or check ird.govt.nz.
In plain English: bank your GST as you go, claim every tool, vehicle and home cost, get subbie withholding right, and set money aside for provisional tax so a busy year never ambushes you.
This is general information, not personalised tax advice.See our full disclaimer.