What is GST?
The Goods and Services Tax (GST) is a consumption tax charged on most goods and services in New Zealand. The current rate is 15%. GST is added to the price of taxable goods and services, and businesses are responsible for collecting this tax from their customers and paying it to the Inland Revenue Department (IRD).
One of my clients, Jane, runs a boutique clothing store in Ponsonby. At first, Jane was overwhelmed by the idea of GST. I explained to her, as above, that GST is a tax added to most goods and services in New Zealand. For example, if she sells a dress for $100, she adds $15 for GST, making the total price $115. However, this $15 is not her money; it must be paid to IRD. I also taught her to keep receipts for claiming GST on business expenses. For instance, if she buys fabric for $50 plus $7.50 GST, she can claim the $7.50 back from IRD. Therefore, the net GST she needs to pay from above to IRD is $15.00 – $7.50 = $7.50. I helped Jane set up Xero to calculate GST on each sale and purchase automatically. With this system, Jane quickly became confident in managing GST, allowing her to focus more on growing her boutique.
Who needs to register for GST?
Any business or individual that carries out a taxable activity and has an annual turnover of $60,000 or more must register for GST. Even if your turnover is below this threshold, you can voluntarily register for GST, which can be beneficial in certain circumstances.
How GST works
Businesses add GST to the price of their goods and services; this is ‘output tax.’ Businesses can then claim back the GST they have paid on business-related expenses and purchases; this is known as ‘input tax.’
Businesses must file regular GST returns with the Inland Revenue Department (IRD). This can be done on a monthly, two-monthly, or six-monthly basis, depending on the business’s turnover and filing preference. In these returns, businesses report the GST collected from sales and the GST paid on expenses. The difference between the two amounts determines whether the business pays money to the IRD or receives a refund.
Types of GST returns
- Invoice basis: Most businesses file GST returns on an invoice basis. This means it is accounted for when invoices are issued or received, regardless of when payment is made.
- Payments basis: Small businesses with a turnover of less than $2 million can opt to use the payments basis, where GST is accounted for when payments are made or received.
- Hybrid basis: A combination of the invoice and payments basis, used in special circumstances.
Exempt and zero-rated supplies
Certain goods and services, such as financial services and residential rental income, are exempt from GST. Meanwhile, some goods and services are taxed at 0%, such as exports and certain land transactions. While no GST is charged, businesses can still claim it back on related expenses. Consult the IRD website for more details on exempt/ zero-rated supplies.
Common mistakes to avoid
- Incorrect invoicing – ensure all invoices include the correct GST amount and your registration number.
- Failing to file on time – late returns can incur penalties and interest charges.
- Not keeping accurate records – maintain detailed records of all transactions to support your returns.
Understanding New Zealand’s GST system is crucial for compliance and financial management. If you have any questions or need further assistance with GST, please contact us. We’re here to help you navigate the complexities of the Goods and Services Tax and ensure your business remains compliant.
