In New Zealand, goods and services tax (GST) is added to the price of most products and services. If your business is GST registered, you collect GST from customers (by adding 15% to your sale price) and you pay this to Inland Revenue, less any GST that your business has paid on GST claimable goods or services.
Not sure whether to register your small business?
If your turnover (gross sales) was more than $60,000 over the past 12 months, or if you expect your turnover in the next 12 months to be more than $60,000, you must register for GST. When you reach this threshold, you need to register within 21 days.
But if your turnover is under the $60,000 threshold, you can choose to voluntarily register for GST or not.
The exception to this is if your prices already include GST, such as taxi drivers. In this case you are required to be registered. If you are part of a company like this, check with them on pricing.
There are a few things to consider when making the decision to register. Get in touch with us if you are unsure whether or not you should register and we'll help you to understand the pros and cons.
GST registered businesses need to choose how to claim and pay
When you register a business for GST, you have to choose how you're going to claim and return GST on your sales and purchases. This means how you're going to report (and pay) your GST transactions to the IRD.
There are three options:
- Payments Basis - Under the payments (or cash) basis, you file GST based on when payment is made or received. This is the most common system in NZ. It is a good way for small businesses to manage cash-flow because you only pay GST when you have received payment. You also claim GST only for expenses you have actually paid for. You can use this system if your annual turnover is less than $2 million.
- Invoice basis - The invoice (or accrual) basis is different to payments basis because you file GST based on the dates that customer invoices (or sales receipts) and supplier bills (or receipts) are issued. So you pay GST on an invoice you have issued regardless of whether you have received a payment. And you claim GST for supplier invoices (bills) dated in the GST period but not paid yet. Businesses with a turnover of more than $2 million have to return on Invoice basis.
- Hybrid basis - The hybrid basis is a combination of the two methods above. GST on sales and income is filed based on invoice basis, and GST on expenses is filed based on payments basis when payment is actually made. This option is less commonly used. Talk to us if you think that this method might apply to your business.
When registering for GST, you will need to choose how often you file your GST return. Larger businesses with a turnover of more than $24 million are required to file monthly. But smaller businesses can choose to file monthly, 2-monthly or 6-monthly. The most common filing method is 2-monthly.
Frequent filing can help stay you on top of GST obligations and give a clear picture of your business progress. It is also better for smaller businesses maintaining cashflow, by paying smaller amounts more frequently.
For more questions on tax and advice on how to structure your business, get in touch.