GOODS AND SERVICE TAX – THE BASICS AND SOME SUGGESTIONS

Goods and Service Tax (GST) is a tax on most goods and services in New Zealand.   It is charged and accounted for at a rate of 15% on the selling price or market value of goods and services.

If you are registered for GST you collect GST when you make sales and then have to pay it to Inland Revenue Department (IRD) in your subsequent GST Return.   Similarly when you make payments of GST you are paying GST out and you can claim this back from IRD in your next GST Return.   When your business Financial Statements are prepared the profit and loss items will be exclusive of GST.

If you are not registered for GST you should not add GST to your charges to customers.   You cannot  escape paying GST though if you are dealing with a tax registered business as they are compelled to add GST to their charges to you, and you do not have the ability to claim this GST back from IRD as you are not registered.   You can, however, claim the full amount of the payments including GST charged by your suppliers in your business Financial Statements.

If you expect that your business turnover (sales) for the next 12 months will be $60,000 or more you must register for GST. 

The GST Number of sole traders is the same as their personal IRD Number.

The major accounting bases for GST are:

Most business people go for the payments basis, as this means that the GST payment they make when filing their GST Return is refected in their cash flow in that they have received the GST from their customers or paid it out to their suppliers

If you choose the Invoice basis and you are operating in a profit situation you could well find that you are paying out GST to the IRD even though you have not received it from your customers (the Invoice Basis means you have to pay GST for the period you  charged it on an  Invoice to your customers), even it they have not yet paid you for that Invoice.

If you are registered for GST you have to file GST returns regularly based on the taxable period, which is the length of time covered by a GST Return, you select.   Available periods are:

Most small business people go for the two month return period, which they find has the following advantages:

When you register for GST you have the option to align your period end with the year end balance date end date.   It is a good idea to agree to this option, as it will mean that your Accountant will be able to easy reconcile your GST for the year at the same time as preparation of your yearly Financial Statements, due to the fact that the two dates align with each other.

Business supplies can be either supplied by you (your sales or services) or supplied to you (your expenses and purchases)

If you are registered for GST you must issue a tax invoice for any supplies you make to another GST registered person .  A copy must be kept of all invoices you give to your customers.

You must also receive a tax invoice from your suppliers for all purchases and expenses over $50.00.   It is advisable to request one in all cases, even if the amount is less than $50.00.

For supplies between $50.00 and $1000.00 suppliers need only issue a simplified Tax Invoice.   This should show:

If the supply is more than $1000.00 suppliers should issue a Tax Invoice which clearly states:

When you’re registered for GST, you account for GST on everything you sell at a rate of 15%.  This also applies to business assets that you sell.  It also includes grants and wages subsidies from the government and public authorities.

There are certain goods and services you don’t charge GST on.   These goods and services  are either exempt from GST or are zero-rated.   This means that GST is charged at zero percent (0%).

Two examples of zero-rated suppliers are:

Some example of exempt supplies are:

Common other items on which you will not have declare GST when you do your GST Returns are:

It follows therefore that you cannot claim GST paid when doing your GST Returns for payments of this nature. 

Common items for small businesses on which GST is not paid and should not be claimed are:  

With reference to assets purchased which are subsequently paid for by loan or hire purchase, you are entitled to claim the full GST on the purchase price in the period in which the asset is acquired.   Claiming the GST as you make the payments is not the correct treatment, as if you did this you would be claiming GST  on interest paid, which is exempt (as is a financial service) as explained above.

If you’re registered for GST you will need to account for GST on secondhand goods supplied to or by you as part  of your taxable activity.   The same rules for GST apply to secondhand goods as for all other goods liable for GST.

If the seller is not registered for GST there will be not tax invoice presented to you, but you can still claim GST in your GST Return, although regardless of your accounting basis, payment must be made before you can make a claim in the case of second hand goods.   In these cases the purchaser must record the:  

If a registered person buys secondhand goods from an unregistered associated  person (e.g. family or business association) the GST expense claim is now the lesser of :  

GST Returns are due to be filed and any payments due by the last calender day of the month following the taxable period end, (with the exception of November taxable period end which is due the following January 15).    Penalties and interest are charged by IRD for returns filed late and late or under payments so it is advisable to carry these out by due date.

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