GST Basics for Beginners: What You Need To Know
If you’re new to running a business in New Zealand, you’ve probably heard of GST (Goods and Services Tax). But, let’s be honest—terms like “GST return,” “input tax,” and “output tax” can sound a little overwhelming.
Don’t worry, you’re not alone! Understanding GST is an
essential part of keeping your business compliant and ensuring you don’t get caught out.
So, let’s break it down in simple terms.
What is GST?
GST stands for Goods and Services Tax, and it’s a tax of 15% added to most goods and
services in New Zealand. Essentially, if you’re in business, you’ll be collecting GST from your
customers when they buy your products or services, and you’ll also be paying GST on the
items and services you buy for your business.
How Does GST Work?
Here’s a simple example:
- You sell a product for $100 + GST. So, your customer pays $115.
- You buy materials for that product, costing $50 + GST, so you pay $57.50.
At the end of the month, you’ve collected $15 GST from your customer (on that $100 sale),
but you’ve paid $7.50 GST to your supplier. You’ll then pay the difference ($7.50) to Inland
Revenue.
It’s a system called “input tax” and “output tax.” You pay GST on what you buy (input tax),
and you collect GST on what you sell (output tax). You then pay the difference to the IRD.
Do You Need to Register for GST?
In New Zealand, you need to register for GST if your business has an annual turnover of
$60,000 or more. If your turnover is less than that, registration is optional, but many small
businesses choose to register anyway, so they can claim back GST on the things they buy.
Even if you’re not required to register, it might still benefit you to do so—especially if you
have a lot of business expenses.
When Should You Charge GST?
Once you’re registered for GST, you need to charge GST on most goods and services you
sell. There are a few exceptions, like basic food items, certain healthcare services, and
residential rents, which are exempt from GST. If you’re ever unsure, it’s best to check with
an accountant or the IRD.
How Often Do You Need to File GST Returns?
As a registered business, you’ll need to file a GST return, usually every two or six months. If
you’ve been collecting more GST from your customers than you’ve paid on your own
business purchases, you’ll owe the IRD money. If the reverse is true, you may get a refund.
The IRD has made it pretty simple to file your returns online through the MyIR portal, but if
that feels like a hassle, there are accountants like us who can help you stay on top of it.
GST on Expenses
One of the best parts of being registered for GST is that you can claim back the GST you’ve
paid on business-related expenses. This includes things like:
- Office supplies
- Equipment
- Rent
- Travel costs
Just remember—this only works for business-related purchases, so if you’re using
something for both personal and business use, you can only claim back the portion that’s
for your business.
GST Tips for Small Business Owners
- Keep Accurate Records: Track your sales, purchases, and GST payments. You’ll need
this info for your returns, and having good records can save you a headache later. - Stay on Top of Deadlines: Filing your returns on time is crucial to avoid late
penalties. Set a reminder for yourself a few weeks before the due date! - Get Professional Help: GST can get tricky, especially when you’re dealing with larger
transactions or complicated deductions. Having an accountant who knows the ins
and outs of GST can save you time and money.
The Bottom Line
GST may seem like a lot to get your head around when you’re starting a business, but once
you understand the basics, it becomes second nature. The most important thing is to keep
accurate records and meet your filing deadlines. And remember, you’re not
alone—accountants are here to help you navigate all the numbers and paperwork so you
can focus on running your business.
If you’re unsure about anything GST-related, feel free to reach out to us. We’d be more than
happy to guide you through the process and make it a little easier for you!
Need help with your GST returns or just want to learn more about how GST works for your
business? Get in touch with us today — we’re here to help!
16 January 2025