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The way that businesses can sell their products has changed dramatically over the past few decades. With the Internet, the possibilities for market expansion are endless. If you want to sell products online, this could be a very successful venture. First, however, you need to ensure that you plan accordingly and look into what laws and regulations could apply to your venture. Tax obligations are crucial, and if you do not comply with these rules, you could face severe penalties. Therefore, for some guidance, this article will provide some background and explain whether GST applies to the products you sell online.

What Is GST?

GST stands for goods and services tax. When you sell certain kinds of goods and services, you may need to add this tax to your prices. Notably, GST will likely apply to most domestic goods and services you will sell to consumers. Most businesses supplying goods and services have to pay GST back to Inland Revenue (IRD) in some form. However, in practice, businesses incorporate GST into their pricing so that the customer covers the cost, which they then forward to IRD. Goods and services that GST applies to are only taxed once. As a result, whether you need to account for it in your pricing will depend on whether you need to be GST registered.

When you purchase goods from your suppliers, and their pricing includes GST, you can claim back those costs from IRD in some cases. However, you have to be GST registered.

The GST rate is usually 15%. However, in some cases, it is 0% (or “zero-rated”) on exports and land that GST-registered businesses sell to each other.

Does GST Apply to My Online Products?

GST broadly applies to most goods and services that businesses may sell, with some exceptions. These exceptions are exempt supplies and include:

  • donated goods or services;
  • some kinds of financial services;
  • rent on a residential dwelling;
  • residential accommodation under a head lease;
  • penalty interest; and
  • supply of fine metals.

In terms of selling online products, GST is likely to apply to almost all of the goods that you may sell. However, whether you need to charge GST as the seller will depend on your circumstances.

If you sell your products overseas to online customers, then they may qualify as zero-rated goods. This qualification means that GST is 0%, and you do not have to account for the tax in your pricing. However, you still need to detail it on your sales records.

Note that GST also applies to digital products, such as music downloads and software. So, if you sell digital products to online customers in New Zealand and are GST registered, you need to account for this.

GST Registration

Not all businesses or organisations have to register for GST. You will only need to do so if:

  • your turnover in the past 12 months was at least $60,000, or you expect it will be in the next 12 months; or
  • you already add GST to the prices of your products.

On top of these requirements, you also need to be carrying out a taxable activity. A taxable activity refers to regular or continuous activity that your business does (or intends to do) in the process of supplying goods for a profit (or other rewards).

Therefore, the following examples do not qualify as taxable activity, and you do not need to register for GST:

  • selling your products as a hobby;
  • selling occasional domestic items;
  • working for a salary or wage; or
  • making exempt supplies.

For instance, if you occasionally sell on an online marketplace like TradeMe, you will not need to account for GST in your pricing.

If you do need to register, you can do so online with IRD. Once you have successfully completed this process, you will need to keep up with various tax obligations, which include:

  • including GST in your prices;
  • providing tax invoices to customers;
  • keeping records of receipts and invoices for claiming back GST on business expenses;
  • filing GST returns with IRD; and
  • paying any due GST.

Other Considerations When Selling Online

You need to be clear about your pricing when it includes GST so as not to mislead your customers. If you end up confusing or misleading them, you can face penalties under the Fair Trading Act, which protects consumer rights. Additionally, you also need to comply with other aspects of consumer protection when selling online, which include:

  • maintaining product quality;
  • observing proper delivery procedures;
  • having the legal title to sell goods;
  • protecting customer privacy;
  • selling goods that are fit for purpose;
  • being upfront about the nature of your goods; and
  • creating fair consumer credit contracts.

Key Takeaways

If you sell goods online, GST is likely to apply to most of your products. However, you only need to account for this tax when you are GST registered. Therefore, you need to look into whether your online business qualifies. If you would like more information or help with selling your goods online, contact LegalVision’s e-commerce lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

What is GST?

GST stands for goods and services tax. This tax is a flat rate that applies to most goods and services in New Zealand and is usually 15%.

Do I need to include GST in my prices?

In most cases, if you regularly sell goods or services, and your annual turnover is at least $60,000 (or likely will be), then you need to include GST in your prices.

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