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If you run a business in New Zealand, you may need to collect Goods and Services Tax (GST) from your customers. This is the case regardless of whether you operate your business as a sole trader, contractor, partnership or company. GST is a flat-rate tax on the supply of goods and services. This is usually 15%, however, it may be “zero-rated” at 0% in certain circumstances. 

As a business supplying goods or services, you are liable to pay this tax. However, in practice, most businesses will factor the cost of GST into their prices so that they can recoup it from their customers. This tax is payable on most goods and services sold for domestic consumption in New Zealand, including certain imports. On occasion, you may pay GST to your suppliers when you buy supplies for your business activities. However, unlike regular consumers, you can claim this back if you have registered with Inland Revenue (IRD)

This article explains:

  • when you need to register or cancel your registration with the IRD; and 
  • how and when you need to file a GST return. 

1. Do You Need to Register for GST?

Registration is not a requirement for all businesses. You are only required to register if your business carries out a taxable activity and:

  • your turnover was at least $60,000 in the last 12 months (or you estimate it will meet this threshold in the next 12 months); or
  • you add GST to the price of the goods or services you sell.

What is Taxable Activity?

Your business carries out a taxable activity when you supply (or intend to supply) goods or services for money (or another reward) on a continuous or regular basis. This will apply even if you do not make a profit from the sales.

For example, you do not need to pay GST if you: 

  • provide a service as a hobby; or
  • have a garage sale at your home.

Exemptions

Even when your business carries out a taxable activity and meets the turnover threshold, you do not have to register for GST if the goods and services you provide are exempt. These include: 

  • financial services, such as interest payments on loans, mortgages or bank fees;
  • donated products and services;
  • rent paid on a private home; and
  • penalty interest.

Can You Opt to Register? 

If you are not sure whether your business will meet the turnover threshold, but you estimate it might, you can voluntarily register for GST. This option is a good idea if your estimate is close to $60,000 a year (or $5,000 per month), as you can be charged penalties if you fail to register when you are required to do so.

Even though registering means extra work for your business, it has some advantages. 

For example, if you are in the start-up or growth phase and you have large expenses but not as much income, you can get a GST refund when you file your return. 

However, make sure you weigh up all the advantages and disadvantages of voluntary registration. 

These requirements can change with updates to government policy. When deciding whether you need to register for GST, always refer to the IRD website or talk to your tax lawyer. 

2. How GST Works

Even though your business has to pay GST, in practice, it is the final consumer who bears this tax. 

For example, suppose you run a catering business and you spend $20 when you buy meat from your supplier to prepare the food which you sell for $40. This is how it works for the various parties involved in this transaction:

  • the meat supplier owes $3 GST for the sale of the meat, but passes this cost onto you by adding it to the sale price;
  • you claim $3 GST for the purchase of the meat from the IRD, meaning you can recoup the cost of GST from the supplier;
  • you owe $6 GST for the sale of the food to your customer, but you add this to the sale price;
  • your customer cannot claim GST, so they bear the cost of the $6 GST. 

How to Register with Inland Revenue 

If you have decided to register, you can do this through myIR (IRD’s secure online services platform). To register, you need: 

Taxable Period

Your taxable period (also known as filing frequency) refers to how often you need to file your GST returns with IRD. You can do this every one, two or six months. 

If you do not choose a taxable period when you register, the IRD will automatically assign you the two-monthly period that matches your balance date. This is the last day of an accounting year which, for most New Zealand businesses, is 31 March. 

Accounting Basis

When registering, you also need to decide how to account for the tax. This refers to the way you choose to claim and pay for GST. There are three methods, including the:

The hybrid basis is the least common in New Zealand. 

Method 

Sales Threshold 

Benefits

How to Claim 

Payment basis 

You can use this method if total sales for your business was less than or equal to $2 million in the previous 12 months; or is estimated to be less than or equal to $2 million in any 12 month period, beginning on the first day of any month.If your expenses are larger than your income, this method allows you to manage your cash flow more efficiently because you pay GST when you get paid; and you claim it for expenses you have already paid for.

You account for GST at the end of the taxable period that you make or receive the payment in.

Invoice basis 

You do not need to meet a specific sales threshold to this method.

If you are the buyer, you can claim GST on expenses and purchases before paying for them.

You claim GST when you receive an invoice and you account for it before issuing an invoice or receiving payment.

Hybrid basis 

You do not need to meet a specific sales threshold for using this method. This method is a combination of the two above. Only beneficial in specific circumstances. Talk to your tax lawyer or accountant before choosing this method.  You account for GST on sales and income using the invoice basis, and on expenses and purchases using the payment basis.

Importantly, if your business’ total sales exceed the $2 million threshold, you may still be able to use the payment basis. You should seek advice from the IRD, your tax lawyer or accountant.

Are Your Sales Taxable? 

If you have registered with the IRD, you have to charge GST at either 15% or 0% when you sell a taxable supply (depending on whether the supply is “zero-rated” or not). 

Taxable Supplies 

These are the goods or services you provide when you carry out a taxable activity. You can charge GST to your customers by either:

  • adding it to your final price; or
  • subtracting it off the price you receive.

Tip: If you have registered for GST, do not forget to add GST to the price of your goods or services, or you could be out of pocket.

Zero-Rated Supplies

When GST is charged at 0%, these are called zero-rated supplies. These are different from exempt supplies, which do not attract GST to begin with. Some examples include exports, land sales and selling a going concern business.

Even though you do not collect any tax on the sale of zero-rated supplies, you still need to report these in your return. 

Can You Claim Your Expenses? 

You can only claim back GST that you pay on your purchases if: 

  • you are registered; and
  • you use those goods and services to make taxable supplies, even if they are zero-rated supplies.

This essentially enables you to pay the GST exclusive amount on products and services, rather than the inclusive price paid by ordinary consumers.

3. How to File and Pay GST

When you register with the IRD, you need to regularly file a return. But before you do so, you need to make sure that you have calculated everything correctly. 

If you find it challenging to make manual calculations or you want to save time when you prepare your return, you should file online using myIR. You need to work out:

  • your total sales and income;
  • your total purchases and expenses;
  • if you have any zero-rated supplies; and
  • whether you need to debit or credit any adjustments.

It is crucial to keep accurate records of your receipts and invoices. You need to retain these records for seven years.

4. When You Need to Cancel Your Registration

If you intend to stop charging GST, you need to let the IRD know. These circumstances might arise where:

  • your business no longer meets the turnover threshold;
  • you do not want to keep charging GST; or 
  • you close down your business.

Some common mistakes that businesses make are: 

  • forgetting to cancel their registration within 21 days of closing down their business (if they do not plan on starting a new taxable activity over the next 12 months); and
  • not accounting for GST on business assets that they hold when they deregister, even if they keep these for private use or another business.  

Key Takeaways 

Not all businesses need to register for GST in New Zealand, but you will be legally required to register if you meet specific criteria. When you register, you pay GST at either 15% or 0%, depending on whether the goods or services are zero-rated or not. In practice, you will pass this cost onto consumers by adding the cost of the tax to the price of your goods and services. If you are registered, you can also claim back the GST you paid for business supplies. Importantly, you need to keep records of your receipts and invoices for seven years. If you stop charging GST, you need to deregister with the IRD. If you need help deciding whether you need to register, or understanding the various methods of accounting for GST in New Zealand, contact LegalVision’s business lawyers on 0800 005 570 or fill out the form on this page.

FAQs

How does GST work?

GST is a tax applied to goods and services sold for domestic consumption. While your business is responsible for paying GST, you can pass this cost onto your customers by factoring the tax into your pricing.

How much is GST in NZ?

GST is generally 15% of the price of the product or service. However, the tax can be zero-rated at 0% in specific circumstances.

How can I claim back GST?

If your business is registered for GST, you can claim back the tax that paid on goods and services that you purchased to produce goods or services as part of your own business.

Who is exempt from GST?

You are not required to register for GST if your business turnover is less than $60,000 per year. Further, even if you exceed this threshold, you may be exempt if your business provides financial services, donated products and services and private home rentals.

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