What is Goods and Services Tax (GST)
GST is New Zealand’s form of indirect value-added tax. GST is a tax on the consumption of most goods and services in New Zealand. It is generally charged and accounted for at the rate of 15%. Anyone with a business turnover of NZ$60,000 or more (excluding GST) must register for and charge GST.
Persons and organisations who have registered with Inland Revenue collect GST from their customers on behalf of the government. They are also responsible for returning GST on certain services they import from a non-resident supplier who is outside New Zealand. The New Zealand Customs Service administers the collection of GST on imported goods.
Registration in optional if the annual turnover is less than NZ$60,000. When registered, the business completes regular GST returns (every one, two or six months) and pays or receives the difference between the GST charged and GST paid on business expenses. If a business is not registered for GST, it cannot charge or claim back GST.
How to account for GST
There are 3 different options for accounting for GST. These are by a payments basis, by an invoice basis and by a hybrid basis. As a GST registered person, you are required to pay GST on your sales and you can claim GST on your expenses. There are many requirements that you have to adhere to if you are a GST registered person. These include keeping full accounting records, charging GST on sales, completing GST returns, paying any tax owing by the due date to the IRD.
Some goods and services, such as rent from domestic accommodation and income from financial services, are exempt from GST. The main features of the New Zealand goods and services tax as compared with value-added taxes in other parts of the world are the single rate and the paucity of exemptions. These characteristics affect the objective that GST should be as neutral as possible in effect and as cheap as possible in administration and compliance.
Basic of GST Practice
GST, like any value-added tax, is a tax on consumption. It is not a cost to business except in terms of the expense of compliance. GST is collected at each stage of the chain of production and distribution. Each party accounts for the tax on the value that he has added to the goods.
As a result of crediting a taxpayer with any input tax, the taxpayer’s output tax does not include tax on the tax already paid by the supplier. Therefore there is no cascade effect on prices charged on tax computed at later stages.
A basic principle of the New Zealand GST is that there should be as few exemptions as possible. Those that do exist are justified by unavoidable administrative considerations or on the grounds of fairness. The most significant exemption is in respect of financial services. Financial services were left out of the scheme of GST simply because of the difficulties of valuation.
The only zero-rated goods are exports. There is a crucial difference in a value-added tax system between zero-rating and exemptions. Where an activity is zero-rated, it remains in the tax system although it is not taxable. The result is that, having paid input tax, an exporter has no output tax. As a result he is continually in credit with the Tax Office. There are major benefits here for exporters over the old wholesale tax system.
Any individual or corporation carrying on a taxable activity must list itself as a registered person unless turnover is below the threshold. The most significant documentation for the administration of GST is the tax invoice. Where goods are imported into New Zealand, GST is charged at entry in much the same manner as customs duty.
Are you conducting a taxable activity in New Zealand?
A taxable activity for GST includes:
- any activity that is carried on continuously or regularly, and
- involves, or is intended to involve the supply of goods and/or services to another person, and
- payment is received for that supply, and
- the supply does not necessarily have to be for profit
If you meet this definition of a taxable activity then we consider that you have a taxable activity for GST in New Zealand. A taxable activity in New Zealand requires that GST is charged on supplies made but allows GST input credits for GST incurred on expenditure in New Zealand.
Your obligations for GST
Once you are registered for GST these are the things you must do:
- Keep full records so IRD can easily check your GST liability.
- Charge GST on all taxable supplies made in your business.
- Account for GST on taxable supplies made and received.
- Complete GST returns and pay any tax owing by the due date.
- Give tax invoices to other registered persons.
- Tell IRD about any changes, for example, if you no longer meet the criteria for the payments basis.
It is very important that you are aware of what you need to do as a registered person. You could be audited at any time. Failure to meet your obligations may result in penalties being charged.
You must tell IRD in writing within 21 days of any changes in:
- name (your own name or the name of your business)
- address (your business premises or postal address)
- your organisation’s constitution
- the nature of your taxable activity
How to register for GST
If you need or want to register for GST, complete and send to the IRD the online GST registration page or download and complete a printable GST registration (IR360) form (Go to “Forms and Returns”).
GST on Sales and Income
If you are using the invoice or hybrid basis, add up all the payments received and invoices issued for taxable supplies you made in the taxable period.
If you are using the payments basis, add up all the payments you received during the period for the taxable supplies you made. Remember to account for cheques, credit cards, EFTPOS transactions and cash when you receive them even if you haven’t banked them at the end of your taxable period.
GST Purchases and Expenses
GST-registered people are able to claim back GST. Boxes 11 to 13 of the GST return are the part of the return that helps you claim the GST included in the cost of your purchases and expenses.
If you are using the invoice basis, work out GST on purchases and expenses for the period by adding up the amount of all purchases and expenses for which you hold the necessary invoices and details.
If you use the payments or hybrid basis of accounting, add up all the payments you made for purchases or expenses during the period for which you hold the necessary invoices or details.
Once you have worked out the GST on purchases and expenses you can fill in the boxes of your GST return.
When You Don’t Charge GST
GST is only charged on taxable activities. Taxable activities do not include:
- working for salaries and wages
- hobbies or any private recreational pursuit
- private sales of personal or domestic items
- making exempt supplies
Persons who conduct non-taxable activities cannot register for or charge GST.