New starter’s guide to GST for business

What you need to know about GST in the time that it takes to clear your desk.

From sorting out GST registration from GST credits, this article will teach you some basics about GST for business before you’ll be able to find your mouse pad.

We’ve cut through the clutter so that this article only takes three minutes to read.

Goods and Services Tax (GST) is a tax of 15 percent applied onto most goods and services provided in New Zealand.

But how does GST affect you, as a small business owner? What do you need to know about it?

Most small businesses in New Zealand will have some GST obligations. You may be required to account for GST in the sales price of your product or service.

It’s not all bad news. Many businesses will qualify for GST credits for various transactions, meaning that you can claim back some of the GST that you’ve paid and funnel that money back into your business. Winning!

DOWNLOAD: MYOB’s FREE invoice template

Registering for GST

Most businesses will have some GST obligations. You must register your business for GST with the Inland Revenue Department (IRD) if your annual business income is, or is expected to be, more than $60,000 in any 12-month period, you must register for GST. You may be charged penalties if you don’t register when you need to.

If you earn less than this in a given year registration for GST is optional. If you have a lot of expenses but not much income it could be smart to voluntarily register as you may be able to claim a GST refund.

Depending on your turnover, a registered person can elect to file returns monthly, two-monthly or six-monthly.

GST-free items

You have to account for GST in the price of most products and services that you sell.

But there are certain items and categories that are exempt from GST – we call them zero-rated goods and services. Zero-rated goods and services include products or services from New Zealand that are sold overseas, eg exports or some land transactions. Zero-rated supplies still have to be recorded on your GST returns.

You can find more information about which items are GST-free here.

How to claim GST credits

As GST is a tax paid by individuals, not businesses, you can claim back the GST you have paid for things that you have bought for your business.

To claim a GST credit for a purchase that cost more than $50.00 (including GST), you must be registered for GST and have a valid tax invoice. Be sure to ask your suppliers for a valid invoice every time you make a purchase for your business.

Find out what details you need to include on a valid tax invoice here.

For items that cost $50.00 or less (including GST), usually a receipt is all you need. Just make sure you’ve registered for GST and keep all dockets, receipts or invoices to support your GST claims.

Make sure you keep your tax invoices and other GST records for at least seven years. These will make life easier for you come reporting time, and in case of auditing.

When it comes time for GST returns you’ll need to know:

• Your total sales and income
• Your total spending, including purchases and expenses
• The total amount of GST you’ve charged to customers

If you’ve paid out more GST than you’ve collected you will receive a refund from the IRD. If you’ve collected more GST than you paid, you’ll need to pay the balance to the IRD by a specified due date.

Issuing tax invoices

When you make a taxable sale of more than $50.00 (including GST), your GST-registered customers will need a tax invoice from you to be able to claim GST credits for their own businesses.

You can find out the specifics about what you need to include here.

Accounting for GST in your business

As a GST-registered business, you need to issue tax invoices to your customers, collect GST from your customers and send them to Inland Revenue.

Here are a few tips to make this process easier to manage:

• Put the GST you collect in a separate bank account, so you’re not caught out at reporting time
• Use business accounting software to produce tax invoices and automatically generate reports of your GST liabilities and credits
• Take advantage of the ‘cash accounting’ option to better align your GST liabilities with your business cash flow
• You can read more tips about managing your GST here

MYOB accounting tools also make tracking GST simple. You can find out which one is best for your business here.

Top 3 takeaways

1. You might be required to apply GST to your goods and services
2. You can claim GST credits on items you have bought for your business
3. You need to account for GST and keep all supporting documents for at least seven years

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