GST is undoubtedly a bit of a minefield for a number of small business owners. The biggest concern we hear regularly is that people just want to get it right. Some small business owners even purposefully limit their sales so they don’t have to register for GST as they are worried about getting it wrong.
With this in mind, we thought we’d share a few key tips about GST.
A valid tax invoice is required if GST is being claimed on an amount greater than $50.00. This means you don’t need a tax invoice for amounts smaller than $50.00 for GST purposes.
However, be aware that for an expense to be deductible for income tax purposes, you are required to have a tax invoice/receipt. So don’t get into the habit of throwing away all receipts less than $50.00 because you don’t think you need them.
IRD has a great explanation of what information must be on a valid tax invoice here. The key thing here is that the tax invoice displays the GST number of the supplier. It’s important to remember that an NZ GST number is made up of three sets of three digits 000-000-000 – any number different to this is not an NZ GST number and therefore the GST is not claimable.
Accounting system hacks
If you have regular amounts going out for a non-GST registered entity, in your accounting system create a new general ledger code to handle the GST (e.g. Subcontractors – No GST or Overseas Sales). By using these, you can have confidence that you’re always handling the GST correctly without having to think too much about it.
Where GST doesn’t apply
Certain services do not have a GST component – make sure you’re not claiming GST for these expenses. Examples include:
- Bank fees
There have been a lot of changes with regards to overseas transactions recently through the introduction of the ‘Netflix tax’ (which impacts overseas internet downloads and online services) and the impending ‘Amazon tax’. This does not automatically mean that GST can be claimed for all purchases regardless of GST rate.
Things you can claim that you might not be aware of
If you are purchasing goods that are used in the course of your taxable business activity from a non-GST registered entity, you can still claim GST under the Second Hand Goods Act. Read more about this here.
GST on finance contracts
When purchasing an asset on a finance contract (a common example would be a vehicle), GST should be claimed on the purchase of the asset, not on the repayments. Many business loans will factor this GST claim into the repayment schedule and allow for a larger repayment at month three following the GST refund.
Note: it is important to know whether your contract is for a finance lease or an operating lease as these are handled differently.
Registering for GST
You can register for GST at any time. However, registration is required where your revenue will exceed $60,000 in a 12-month period. The 12-month period is a rolling 12 months. A common misconception is that it is $60,000 in a financial year and quite a few people are caught out by this.
Always double check
And most importantly, if you’re ever unsure we recommend checking with your accountant for confirmation on how to handle something for GST.
If GST gives you the heebie jeebies, your bookkeeping could be a task worth looking at outsourcing.