If you want to start a business, or work as a freelancer or contractor in New Zealand, GST definitely something you should know more about—but what is GST? Let’s take a closer look.
We know tax isn’t most people’s favourite subject, but it’s worth understanding the goods and services tax, since it’s a major part of New Zealand’s tax system and affects both businesses and individuals.
What is GST?
In New Zealand, the goods and services tax is a 15 percent tax added to most transactions. It was implemented by the New Zealand government in 1986. Whether you’re enjoying your morning coffee, hiring professional services or selling your products, this tax is likely involved.
How does GST work?
Businesses who meet the criteria listed below must register for GST. Once registered, you have to add 15% tax to the prices of products and services when you invoice your clients.
You have to report GST to Inland Revenue by filing a GST return. In the return, you calculate the GST you have collected on sales and the GST you’ve paid your suppliers. If the paid amount exceeds the amount collected, you can claim a refund.
If the collected amount exceeds the paid amount, you have to pay the difference to Inland Revenue.
Do I need to register for GST?
First of all, let’s see if you need to register. It all depends on your turnover, in other words how much money you make on sales. You have to register if you carry out taxable activity and you
- have had a turnover of NZD 60,000 in the last 12 months, or
- expect to have a turnover of more than NZD 60,000 in the coming 12 months, or
- invoice your clients with GST
What is taxable activity?
According to an Inland Revenue GST brochure, taxable activity is “any activity carried out continuously or regularly by a business, trade, manufacturer, professional person, association or club. It includes any activity that supplies, or intends to supply, goods and services to someone else for consideration (money, compensation, or reward) but not necessarily for profit. It does not include: working for salary and wages, being a company director, hobbies or any private recreation pursuit, private transactions such as the occasional sale of household or domestic items, making exempt supplies.”
How do I register for GST?
1. Get an IRD number
When you start a business in New Zealand—or set up as a freelancer or contractor—you have to get an IRD number. The number is used to identify your business. Before you register for GST, you must have an IRD.
2. Register online
You register through myIR. You’ll need your IRD number, your bank account number so you can get refunds if you’re entitled to them, as well as information about your turnover in the last 12 months and your expected turnover in the upcoming 12 months.
You’ll also need your business industry classification (BIC). Find your BIC.
During the registration process, you’ll be asked to choose an accounting basis and filing frequency—montly, two-monthly or six-monthly. Choose the timeframe that best suits your business’s cash flow needs.
What do I have to do once I’ve registered?
Once you’re done, you’ll have to invoice your clients with a 15% tax rate. You’ll also have to file GST returns by the due date. In the GST return, you’ll list how much GST you’ve claimed from clients and how much GST you’ve paid to your suppliers.
If you’ve collected more than you’ve paid, you have to pay the balance when you file your return. If you’ve paid more than you’ve collected, you’ll get a GST refund.
Pro-tip: Manage GST with invoice software
With invoice software, you can easily add tax to your invoices. Just add your products and services to the invoice and choose the 15% tax rate. The invoice software will work out the total tax for you and clearly display it on your invoice.
Best of all—it’s completely free to use.
How do I calculate GST?
Once you’re registered, you have to send tax invoices to you clients, with a 15% tax rate added to your products and services. If you sell an item for NZD 100, you should add a goods and services tax of NZD 10. The total amount your client has to pay would be NZD 110.
Do I have to include GST on everything?
GST-free sales
Not everything is subject to GST in New Zealand. This includes:
If you’re unsure, we recommend speaking to a lawyer or tax specialist, or contacting Inland Revenue directly.
Make sure to invoice with GST
Once you’re registered for GST, you have to send tax invoices to your clients. You have to state at the top that it’s a tax invoice, and add 15% to all items, except those that are GST-free.
Want to make invoicing easier? With free invoice software, tax is automatically calculated for you. We’ll also remind you if you’ve forgotten to add a tax rate for a product or service.
Conta is used by more than 80 000 businesses in New Zealand and worldwide:
Conta has streamlined my invoicing process with its user-friendly interface and reliable features. As a BI reporting and data analysis professional, it has been the perfect tool to manage and grow my new business.
– Stefan Kleinhans
Librix Innovations Pty LTD
