The Gist of GST: A Quick Guide for NZ Business Owners
If you’re a business owner in New Zealand, understanding GST (Goods and Services Tax) is super important.
Whether you prefer the DIY approach or would rather hand over the hassle of filing GST returns, this guide we’ll break down the basics of GST, show you how to calculate it, and help you avoid some common pitfalls. So you can confidently manage your tax obligations and keep your business running smoothly.
What Is GST All About?
GST stands for Goods and Services Tax, and it’s a 15% tax added to most goods and services sold in New Zealand. If your business is registered for GST, you’re responsible for collecting this tax from your customers and passing it on to the Inland Revenue Department (IRD).
When Do You Need to Register for GST?
You’re required to register for GST if:
Your business has an annual turnover of $60,000 or more.
You expect your turnover to exceed $60,000 in the next 12 months.
Whether you’re a sole trader, contractor, in a partnership or operating as a company; if you expect to earn more than $60,000, then you should register for GST. If you don’t, you could face penalties.
Voluntary GST Registration
If you’re not expecting to hit that $60,000 mark, it’s up to you whether to register or not. One advantage of registering voluntarily is that you might be able to claim a GST refund, especially if you’ve got more expenses than income. Just remember, once you’re registered, you’ll need to file regular GST returns.
How To Register For GST
Registering for GST is a straightforward process you can do online through myIR. Here’s what you’ll need to get started:
Your IRD Number: Have your IRD number handy.
Your Business Industry Classification (BIC) Code: You’ll need this to classify your business. If you’re not sure what your BIC code is, you can find it on the Business Industry Classification Code website.
Choosing Your Filing Frequency: Decide whether you want to file GST monthly, two-monthly, or six-monthly. For small businesses, two-monthly is a popular choice.
Choosing Your Accounting Basis: Small businesses often benefit from choosing the payments basis, which means you only pay GST once you’ve received payment from your customers. This can help with cash flow management.
Ready to register? You can do it now through Inland Revenue’s online portal.
How To Calculate GST
Let’s dive into the nitty-gritty of calculating GST:
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This one’s easy – just multiply the price by 1.15 to add GST.
Example:
Got an item that costs $100 (before GST)? Just multiply $100 by 1.15, and voilà – the GST-inclusive price is $115.
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Need to find out the price before GST? No problem! Divide the GST-inclusive price by 1.15.
Example:
If an item costs $115 (including GST), dividing by 1.15 gives you $100 – that’s the price before GST.
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To figure out how much of that GST-inclusive price is actually GST, you can either subtract the pre-GST price from the total or use a quick formula: multiply the GST-inclusive price by 3/23.
Example:
For an item priced at $115 (including GST), $115 × 3/23 = $15 – that’s the GST portion.
TRY OUR GST CALCULATOR:
*While we've done our best to make sure this calculator is accurate, the results should only be used as a guide.
How Your GST Payment To IRD is Calculated
The amount of GST you need to pay to the IRD is calculated as follows:
GST on Sales (Output Tax): This is the total GST you’ve collected from your customers during the period.
GST on Purchases (Input Tax): This is the total GST you’ve paid on your business expenses.
To find out how much you owe (or are owed):
GST Payable: If your Output Tax (GST on Sales) is greater than your Input Tax (GST on Purchases), you’ll need to pay the difference to the IRD.
GST Refund: If your Input Tax (GST on Purchases) is greater than your Output Tax (GST on Sales), you’ll be entitled to a refund from the IRD.
Example:
GST on Sales (Output Tax): $1,000
GST on Purchases (Input Tax): $700
In this case, you would need to pay the IRD $300 ($1,000 - $700).
When to File and Pay GST
In New Zealand, you’ll typically file and pay GST every one, two, or six months, depending on your filing frequency. The IRD will let you know your schedule when you register. Just remember to file your returns and pay what you owe on time to avoid any penalties.
Tools to Make calculating GST a Snap
Let’s be honest – nobody wants to spend hours crunching numbers. That’s where accounting software like Xero or MYOB comes in handy. These tools automatically calculate GST, help with filing, and keep your records organised. They’re lifesavers, especially if your business has a lot of transactions.
Avoid These Common GST Mistakes
Nobody’s perfect, but here’s some common GST slip-ups we have seen small business owners make when managing their own:
Registering for GST too early: Don’t jump the gun – weigh up the pros and cons before registering if you haven’t hit the $60,000 turnover yet.
Picking the wrong accounting basis: Most small businesses, contractors, and self-employed folks should stick with the "payments basis." It keeps things simple and ensures you’re only paying GST on money you’ve actually received.
Filing your GST Return late: Missing the due date can result in penalties and interest from Inland Revenue. Stay organised by marking deadlines in your calendar and setting reminders.
TAD Top Tip: We have a handy printable calendar to help you out.Skipping record-keeping: Keep those receipts and invoices! You need to hang onto them for seven years to stay on the right side of the law.
Forgetting to charge GST if you’re registered: Even if your turnover dips, you’ve still got to collect and pay GST until you officially deregister with Inland Revenue.
Not deregistering when you close up shop: If you shut down your business and aren’t planning to start a new one soon, make sure to cancel your GST registration within 21 days.
Missing the GST on assets when you deregister: Got business assets when you deregister? You’ll need to account for the GST on those in your final return.
Let Us Take The Stress Out Of GST
GST doesn’t have to be a headache. With a little know-how and the right tools, you can manage your GST obligations with ease. And if you ever feel like you’re in over your head, The Accounts Department is just a call away.
We’ll take the stress out of GST so you can focus on what you do best – running your business!