GST for New Zealand Businesses: A Comprehensive Guide

Navigating the Rules: Understanding GST in New Zealand

If you run a business in New Zealand, you need to know about GST (goods and services tax). This is a tax that is added to the price of most goods and services in New Zealand, including most imported goods and some imported services. GST is currently 15%. In this comprehensive guide, we will walk you through the essential aspects of GST and provide valuable insights for New Zealand businesses.

Registering for GST

As a business owner, you must register if your annual turnover (total sales) exceeds $60,000 or is expected to exceed that amount in the next 12 months. You can also register voluntarily if your turnover is below that threshold. Once you are registered for GST, you must charge GST on your sales. You can also claim GST on your purchases if they have GST included in them. This lowers your GST due and can create a GST refund if there is a large purchase (e.g. a vehicle purchase).

Do all purchases have GST?

No, not all businesses are GST registered so you cannot claim payments made to them. In addition, there are some costs that don’t have GST in them. Examples of such include: wages, bank fees, interest and loan payments.

How often do I need to file GST returns?

You can choose to file your GST returns monthly, two-monthly or six-monthly. Most small businesses choose to file two-monthly or six-monthly GST returns. The filing frequency affects how often you must pay or receive GST, as well as how much paperwork you must do.

What is the GST accounting basis?

When you register for GST, you must choose an accounting basis from these options: payment method, invoice method or hybrid method. The accounting basis determines when you must account for GST on your sales and purchases. The payment method is based on when you receive or make payments, the invoice method is based on when you issue or receive invoices, and the hybrid method is a combination of both.

Should I be registered under the payment’s basis?

This is the most common GST basis. The payments basis is usually the best for cashflow as you are only have to pay GST on your sales when you receive them. Under the GST invoice basis, you need to return the GST on sales before you receive the receipts from your customer or client.

Why would anyone go on the invoice basis then?

Unfortunately for our clients with turnover $2m plus, they are obliged to be registered under the invoice basis. This means they must return the GST on sales they bill for the GST period. However, they also get to claim their GST expenses even though they haven’t paid them. Some business that have high upfront purchasers/costs but take longer to receive payment may also benefit.

New rules for GST invoicing effective 1 April 2023

The new rules replace the requirement to use tax invoices with a more general requirement to provide and keep certain records known as taxable supply information. The new rules set out the minimum set of records required to support the figures in your GST returns. You can use any format or method to provide taxable supply information, if it contains the required information and is easily accessible by Inland Revenue. You can also use eInvoicing, which is a secure way of exchanging invoices electronically between businesses.

Record keeping

You must keep a record of all your invoices and expense receipts (and keep these records for seven years). You also must keep a record of any adjustments you make for business, private and exempt use of goods and services.

How to deal with GST in Xero

Xero is a cloud-based accounting software that can help you manage your GST easily and efficiently. This cloud-based system calculates the GST for each transaction line individually, based on the tax rate you select. The system also generates your GST returns, based on the accounting basis and filing frequency you choose. You can review and edit your returns before submitting them online to Inland Revenue.

Key calculations

When we talk about amounts in business, we talk about GST inclusive amounts (the amount includes GST) and GST exclusive amounts (the amount excludes GST).

How do I add GST?

To add GST to an amount you would times the GST exclusive amount by 1.15. This gets the GST inclusive price.

Example: $100 needs GST added to it to find the selling price. $100 * 1.15 = $115 GST inclusive price.

Alternatively, we can flip the calculation to find what the GST portion is that needs to be added. Here we would multiple by 0.15.

Example: $100 needs to be added to $100. $100 * 0.15 = $15 GST. $100 original amount plus the $15 GST = $115 GST inclusive price

How to I find the GST amount in a price?

Multiply the GST inclusive amount by 3 and divide by 23.

Example. The price is $115 including GST. The GST portion is: $115 * 3/23 = $15.

How do I find the GST exclusive price?

In this instance you would divide the GST inclusive price by 1.15.

Example. The price is $115 GST including GST. The GST exclusive price is: $115 / 1.15 = $100.

Summary – GST in New Zealand

Tax can be complex and confusing, but it is an essential part of doing business in New Zealand.

If you need more information on GST, you can visit the Inland Revenue website. Alternatively, if its specific advice you are after, contact us at Business Like NZ Ltd. We have been Chartered Accountants for South Auckland (and beyond) for years! – 09 262 0726.