10 Critical GST Mistakes New Zealand Businesses Must Avoid

GST compliance represents one of the most challenging aspects of financial management for New Zealand business owners. At Business Like NZ Ltd, we’ve observed numerous clients struggling with the same GST issues year after year. This comprehensive guide identifies the ten most prevalent GST mistakes and provides actionable strategies to help your business maintain compliance while optimizing financial efficiency.

The Hidden Costs of GST Mistakes

Before diving into specific GST mistakes, it’s worth understanding what’s at stake. GST errors can result in:

• Unexpected tax penalties
• Time-consuming audits
• Reputation damage with suppliers and customers
• Cash flow disruptions
• Additional accounting costs for corrections

With these consequences in mind, let’s explore the common pitfalls and their solutions.

1. Missing the GST Registration Deadline

The Problem:
Many New Zealand businesses fail to register for GST at the appropriate time, often because they don’t closely track when they cross the $60,000 threshold. This oversight can lead to retroactive GST payments and penalties.

The Solution:
Implement monthly revenue tracking with automated alerts when approaching the threshold. Set a calendar reminder to check your cumulative turnover quarterly. Remember that GST registration becomes mandatory when either:

• Your turnover exceeded $60,000 in the past 12 months
• Your turnover will exceed $60,000 in the next 12 months

Pro Tip: Consider voluntary registration even before reaching the threshold if you have significant business expenses with GST components.

2. Applying Incorrect GST Rates

The Problem:
New Zealand’s GST system primarily uses a flat 15% rate, but exceptions exist. Misapplying rates or incorrectly calculating GST can throw off your entire accounting system.

The Solution:
Create a reference guide for your specific business that clearly indicates:

• Standard-rated supplies (15%)
• Zero-rated supplies (0%)
• GST-exempt supplies (no GST)

Regularly update your accounting software to ensure it applies the correct rates automatically, especially when tax regulations change.

Need some software? See our article: Is Xero Right for My Business? 

3. Claiming GST on Non-Deductible Expenses

The Problem:
Not all business expenses qualify for GST credits. Attempting to claim GST on entertainment, personal items, or other non-deductible expenses is a red flag for IRD auditors.

The Solution:
Maintain a clear list of non-deductible expenses, including:

• 50% of entertainment expenses
• Private expenses
• Residential accommodation (with specific exceptions)
• Fine payments and penalties
• Non-business assets

Use separate expense categories in your accounting system to prevent accidental claims leading to GST mistakes.

4. Poor Record-Keeping Practices Lead to GST Mistakes

The Problem:
Without proper documentation, validating GST claims becomes nearly impossible during an audit. Missing tax invoices are among the most common issues we encounter.

The Solution:
Implement a digital record-keeping system that:

• Captures and stores tax invoices immediately upon receipt
• Maintains records for at least 7 years
• Tags invoices with appropriate GST treatment
• Includes all required elements for valid tax invoices

Remember: Taxable supply information must be provided to GST registered buyers within 28 days of a request (or by an alternative date agreed to by the parties) for supplies over $200.

5. Missing GST Return Filing Deadlines

The Problem:
Late GST filings trigger automatic penalties and interest charges, creating unnecessary expenses for your business.

The Solution:
Create a GST compliance calendar with:

• Clear filing deadlines based on your filing frequency
• Preparation reminders 1-2 weeks before deadlines
• Backup plans for holiday periods or staff absences
• Automated notifications through accounting software
• Register with Inland Revenue so that your my.IR account sends reminders. Text and/or email reminders are available.

Consider setting internal deadlines several days before actual due dates to provide buffer time for unexpected delays.

6. Mixing Cash and Accrual Accounting Methods

The Problem:
Inconsistency between accounting methods causes significant GST reporting errors. Many businesses accidentally switch between cash and accrual basis when recording transactions.

The Solution:
Select one GST accounting method and apply it consistently:

• Invoice (accrual) basis: GST is accounted for when invoices are issued/received
• Payments (cash) basis: GST is accounted for when payments are made/received
• Hybrid basis: A combination method available for certain businesses

Review your accounting settings quarterly to ensure all transactions follow your chosen method.

7. Neglecting GST Account Reconciliation

The Problem:
Without regular reconciliation, discrepancies between collected GST, claimed GST, and reported amounts can grow into significant problems over time.

The Solution:
Perform monthly GST reconciliations by:

• Comparing GST collected from customers vs. GST paid to suppliers
• Reviewing GST control accounts in your accounting system
• Addressing variances promptly
• Ensuring GST returns match your accounting records

Use dedicated GST tracking reports in your accounting software to simplify this process and reduce the chances of mistakes.

8. Mishandling International Transactions

The Problem:
International transactions have special GST rules that differ from domestic sales and purchases. Misunderstanding these rules can lead to GST mistakes.

The Solution:
Develop clear protocols for:

• Zero-rating exports correctly
• Handling imported goods and GST
• Managing digital services from overseas suppliers
• Documenting proof of export for zero-rated sales

For businesses with significant international activity, consider periodic reviews by your Accountant.

9. Blurring Personal and Business Finances Contribute to GST Mistakes

The Problem:
Using personal accounts for business purposes complicates GST compliance and often results in missed input tax credit opportunities or incorrect claims.

The Solution:
Establish strict separation between personal and business finances:

• Maintain dedicated business bank accounts and credit cards
• Create clear processes for handling mixed-use assets
• Implement proper documentation for any personal expenses later transferred to the business
• Train all staff on proper expense coding procedures

Regular reviews of expense classifications can catch problems before they appear on GST returns.

10. Failing to Update GST Processes to Prevent GST Mistakes

The Problem:
Tax regulations evolve, but many businesses fail to update their GST procedures accordingly, leading to compliance gaps over time.

The Solution:
Stay current with GST requirements by:

• Subscribing to IRD updates and tax newsletters
• Scheduling annual reviews of GST procedures
• Updating accounting software regularly
• Consulting with tax professionals about significant business changes

Consider an annual “GST health check” with your accountant to identify and address any current mistakes and emerging compliance issues.

The Path to GST Compliance Success

While GST compliance can seem overwhelming, the right systems and knowledge make it manageable. At Business Like NZ Ltd, we specialize in helping businesses establish robust GST processes that minimize risks and mistakes and maximize legitimate input tax credits.

Remember that GST compliance isn’t just about avoiding penalties—it’s about creating financial clarity that supports better business decisions. By addressing these common mistakes, you’ll build a stronger foundation for your business’s financial management.

Need personalized guidance for your GST challenges? Contact our team at Business Like NZ Ltd for a consultation tailored to your specific industry and situation.

For more information about GST in New Zealand, see our article: GST for New Zealand Businesses: A Comprehensive Guide

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Have questions about GST compliance or other accounting challenges? Reach out to Business Like NZ Ltd today for expert guidance tailored to your business needs.