A Small Business Owner's Guide to GST in New Zealand

Goods and Services Tax (GST) is a consumption tax levied on most goods and services supplied in New Zealand. At 15%, it is a significant component of the price consumers pay, and for business owners, it creates ongoing compliance obligations that need to be managed carefully. Whether you are just starting out or have been in business for years, understanding GST properly can save you money, time, and stress.

When Do You Need to Register?

You must register for GST if your taxable supplies exceed, or are expected to exceed, $60,000 in any 12-month period. This is not based on your financial year; it is a rolling 12-month test. If you hit the threshold at any point, you are required to register within 21 days.

You can also register voluntarily if your turnover is below the threshold. Many business owners choose to do this because it allows them to claim GST on business expenses. However, voluntary registration also means you take on all the same filing and compliance obligations as a compulsory registrant, so it is worth considering whether the benefit outweighs the administrative burden, particularly if your customers are not GST-registered themselves (as they cannot claim back the GST you charge them).

Filing Frequencies

Once registered, you need to file GST returns at regular intervals. The IRD offers three filing frequencies:

• ●Monthly: required if your turnover exceeds $24 million, but available to anyone. Useful if you regularly receive GST refunds.
• ●Two-monthly: the default for most businesses. Returns are due on the 28th of the month following the end of each two-month period.
• ●Six-monthly: available if your turnover is below $500,000. Reduces the filing burden but means you need to manage cash flow carefully, as GST collected over six months needs to be paid in a lump sum.

The filing frequency that suits you best depends on your cash flow patterns, the nature of your business, and how much administration you are willing to manage. We generally recommend two-monthly filing for most small businesses. It strikes a reasonable balance between compliance burden and cash flow management.

What You Can Claim (and What You Cannot)

One of the main benefits of GST registration is the ability to claim back GST on business expenses (input tax credits). However, not everything qualifies. The general rule is that you can claim GST on goods and services that are used in your taxable activity. This includes:

• ●Office supplies and equipment
• ●Professional services (accounting, legal, consulting)
• ●Vehicle expenses (subject to apportionment if there is private use)
• ●Rent on business premises
• ●Marketing and advertising costs
• ●Software subscriptions and technology costs

You generally cannot claim GST on:

• ●Private or domestic expenses
• ●Entertainment expenses (only 50% claimable in many cases)
• ●Purchases from non-GST-registered suppliers (there is no GST to claim)
• ●Exempt supplies such as residential rent and financial services
• ●Penalties and fines

If goods or services are used partly for business and partly for private purposes, you need to apportion the GST claim accordingly. The IRD has specific rules around apportionment, and getting this wrong is one of the more common errors we see in GST returns.

Zero-Rated vs Exempt Supplies

This is an area that causes considerable confusion. Both zero-rated and exempt supplies result in no GST being charged to the customer, but the effect on the supplier is quite different.

Zero-rated supplies are taxable supplies charged at 0% GST. Because they are still taxable supplies, you can claim input tax credits on expenses related to making them. Common examples include exports of goods, the sale of a going concern (if certain conditions are met), and supplies of land between GST-registered parties.

Exempt supplies are not taxable supplies at all. You do not charge GST on them, and you cannot claim input tax credits on related expenses. The most common examples are residential rental income and financial services (such as interest, life insurance, and currency exchange).

If your business makes a mix of taxable, zero-rated, and exempt supplies, the apportionment rules become more complex. This is an area where professional advice is strongly recommended.

Common GST Mistakes

Over the years, we have seen the same mistakes come up repeatedly. Here are the most common ones:

• ●Claiming GST on expenses that are not supported by a valid tax invoice. The IRD requires tax invoices for claims over $50. Without them, your claim may be disallowed in an audit.
• ●Failing to register on time. If you exceed the $60,000 threshold and do not register within 21 days, you may face penalties, and you will owe GST on supplies made from the date you should have registered.
• ●Incorrectly treating supplies as zero-rated or exempt. Getting this wrong can result in either underpaying GST (leading to penalties and interest) or overpaying it (reducing your cash flow unnecessarily).
• ●Not accounting for private use. If you claim 100% of the GST on an asset that is partly used privately, the IRD can adjust your claim and charge penalties.
• ●Mixing up GST-inclusive and GST-exclusive amounts. Your accounting system should be set up to handle this consistently, but errors creep in, particularly when entering invoices manually.
• ●Missing filing deadlines. Late filing attracts penalties, and repeated late filing can result in the IRD changing your filing frequency or conducting an audit.

Choosing an Accounting Basis

When you register for GST, you need to choose between the invoice basis (also called the accrual basis) and the payments basis (also called the cash basis). On the invoice basis, you account for GST when you issue or receive an invoice. On the payments basis, you account for GST when payment is actually made or received.

The payments basis is available if your taxable supplies are $2 million or less. It is often preferable for small businesses because you do not have to pay GST on invoices you have issued but not yet been paid for. This can make a significant difference to cash flow, particularly if you have customers who are slow to pay.

Getting GST Right From the Start

GST compliance does not have to be complicated, but it does need to be done properly. A well-set-up accounting system, good record-keeping habits, and a basic understanding of what you can and cannot claim will go a long way. If you are unsure about any aspect of your GST obligations, getting advice early is always cheaper than fixing problems later.

“GST compliance does not have to be complicated, but it does need to be done properly.”