Taxes are something you cannot avoid, even if you were living in New Zealand! While the country imposes many taxes, it is the residents who reap benefits. Tax income plays a vital role by contributing to building infrastructure, education & other facilities. The New Zealand GST is one such important tax.
GST also known as goods & service tax, that applies to all consumable goods and services. New Zealand GST currently stands at a flat rate of 15%. When a company sells goods or services, GST is added to the price. Thus, a company will charge the customer, collect it on behalf of the government & submit the payment.
If you have decided to register for GST in New Zealand, you may want to ask yourself these questions to get a clearer picture:
- Do you need to register for GST
- How to get an IRD number
- How do you plan on claiming or returning GST
- How often do you file GST returns
- What is your business description or code
- Register for GST with myIR online services
- What comes after registration
New Zealand GST applies to products & services that are supplied continuously or regularly. These are called taxable activities. Certain transactions that don’t fall to that category.
- salary or wages of an individual
- hobbies or recreational activities
- occasional selling of domestic products
- GST-exempt supplies
Examples for New Zealand GST-exempt supplies are as following;
- Letting or renting a property/house/flat as a residential home
- Interests you receive on bank loans or bank fees
- Donated goods & products sold by a non-profit company
- Certain financial services such as penalty interest
Taxable supplies are products or services you sell regularly and continuously supply to others for a payment.
- If you carry out a taxable activity
- If your annual turnover (gross income) is over NZ$60,000
- If your price includes GST
Then, you must register for goods and services tax in New Zealand.
There is an exception. Even if you are making less than NZ$.60,000 you can register for GST. By voluntarily registering for goods and services tax, you receive many benefits. You can claim a GST refund if your expenses exceed your income. But it is important for you to include GST in your prices. Or else, you will be paying it out of your pocket.
- Products: consumables, clothes, food, etc.
- Services: building, hairdressing, graphic designing, etc.
- Experiences: Watching movies, skiing, bungee jumping
- Professional service: Legal advice, medical services
You cannot add GST to your sales price if you are not registered.
When registering for goods and services tax GST in New Zealand, you must consider these main factors:
You may file tax returns monthly, two-monthly or six-monthly. One important tip for a small business owner is that a two-monthly filing is most suitable. Because there is less paperwork and much easier to keep track of. But if your turnover is less than NZ$. 500,000 then six-monthly filing is ideal. Rule of thumb is to keep a record of all invoices & receipts for up to seven years. Keep aside GST payments you receive to pay to the IRD during return time. Always mention your GST number on all tax invoices.
Accounting basis is the way you choose to claim & return GST. There are three methods you may choose from:
- Payment basis:
- Return GST on your income in your GST return once you receive payments from customers
- Claim the GST for expenses & purchases in your GST once you pay for them
Any GST registered person may use accounting basis if, Total sales amount during the last 12 months was NZ$2 million or less
- Invoice basis:
- Return the GST on your income either when you have issued invoice or receive payment (Even if payment is pending)
- Claim the GST on your expenses in your next GST return after you receive invoice or payment
- Hybrid Method: A combination of Payment & invoice
- Return GST on your sales & income after you issue an invoice or on payments received. This is similar to Invoice basis
- Claim the GST for your expenses in your GST return after you make payments. This is a similar to a payment basis.
The next question is how do you register for the New Zealand GST?
Before you register for GST ask yourself the following:
- Do you need to register for GST
- What is your IRD number?
- How do you want to claim & return GST
- How often do you need to file GST returns
- What is your business description & code
- Register for New Zealand GST with myIR
Upon completing registration, you may use the myIR website to manage and pay GST online.
There are four main steps to completing a GST return:
- You must calculate your sales & income
- You must calculate your purchases & expenses
- GST adjustment
- Calculate your total GST
As you already know, there are GST exempt supplies that are not included in your GST return. Apart from those we have something called Zero-rated supplies. These do not fall under the category of exempt supplies but there is a 0% GST.
- Exported goods
- Sales of going concerns (selling or buying a business that will continue to run at the same entity)
- Land sales
If you have Zero-rated supplies you may claim GST on your expenses.
Here, let me give you an example.
John grows Kiwi fruit in New Zealand. He exports to China. John can claim the full cost of fertilizer & sprays used in the business. As John exports Kiwi fruit, he will not be charged GST. He may enter his income as part of his sales. He then makes the apportionment between zero-rated supplies & taxable supplies.
If you have successfully registered for GST, what would your customer need to know?
You must issue a tax invoice to your customer. Information put on a tax invoice depends on the value of goods & services value.
- If a sale is less than NZ$.50 you can issue a receipt instead of a tax invoice
- If a sale is NZ$.50 or more, then you must issue a Tax Invoice.
It is of utmost importance for records to be in English or Maori (unless the IRD grants written permission for you to use another language).
Even if records are in Maori, the suffix, “Tax Invoice” must be in English. Also, you must use Arabic numerals. E.g. 1,2,3 etc.
What if you face a situation where you need to de-register from GST? God forbid, what if you have to close down your business, or your turnover falls below NZ$.60,000 a year? Then the wisest choice is to deregister from GST. When that occurs, you must inform the IRD by Call or message via myIR. If you don’t de-register, you will have to continuously file returns. And end up paying GST even if you haven’t charged!
These are some of the most common mistakes people tend to make but must avoid:
- Registering for the GST before reaching NZ$.60,000. Make sure you are aware of the advantages & disadvantages of doing so.
- Choosing the wrong accounting basis. As mentioned earlier, the ‘payment method’ is best for small businesses, contractor or self-employed.
- Record Mismanagement
- Not charging while you are registered for GST!
- Failure to deregister if you close down businesses
Frequently Asked Questions
What is a GST return?
A document that contains details of income of a business that has to be filed at the IRD. GST Return includes:
- Output GST (on sales)
- Input Tax credit (GST paid on purchases)
What forms are necessary to file New Zealand GST returns with IRD?
If you are not liable for provisional tax, GST 101A. If you are liable for provisional tax, then you must use GST 103
What happens to GST I collect from customers and pay on my purchases?
There are two sides of the equation,
- You collect GST from goods and services sales
- You pay GST through business purchases & expenses
When you file your New Zealand GST returns, you must calculate the difference between the GST your received & paid. If you have paid GST more than what you collected, you will receive a refund. Likewise, if you have collected more GST than what you paid, you will pay the balance to IRD by the due date.
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