The Goods and Services Tax, popularly known as GST, is an essential component of New Zealand’s tax system that has an impact on both large and small businesses alike. Every business owner is expected to file their GST return, no matter the size of their business. At first, it may appear to be an overwhelming task to comprehend how to correctly file your GST return; but, if you take the appropriate steps, the procedure will become more manageable. In this book, you will learn the fundamentals of the Goods and Services Tax (GST), as well as how to be ready for your GST return and the process of filing with the Inland Revenue (IR) in New Zealand.
What is GST, and who is required to file it?
In New Zealand, the majority of goods and services are subject to the 15% Goods and Services Tax (GST). Companies that make more than NZD $60,000 a year, or anticipate doing so, are required to register with Inland Revenue. Businesses must include GST in the price of their taxable goods and services after registering, thereby collecting the tax for the government.
In order to maintain compliance with the tax system, businesses must also submit regular GST returns to disclose their taxable sales and claim GST credits on purchases connected to their business.
Key Concepts of GST
- Output GST: The GST you collect from customers on your sales.
- Input GST: The GST you pay on purchases for your business.
- GST Return: A summary of your output and input GST to determine if you owe Inland Revenue or are eligible for a refund.
Step 1: Registering for GST
To register, log into Inland Revenue’s myIR platform. You will need:
- Your business details (legal name, address, and IRD number).
- An estimate of your turnover.
Once registered, Inland Revenue assigns you a GST filing frequency based on your turnover:
- Monthly: For businesses with high transactions.
- Two-Monthly: Common for most businesses.
- Six-Monthly: For businesses with low turnover.
There are two options when you sign up for GST: “return filing frequency” and “accounting basis.”
How often you send in your GST returns is based on the filing frequency. “Twice a month” is the most popular choice, but you can also pick “Monthly” or “Six-monthly.” If you choose every six months, you’ll have to choose the specific filing months – March and September usually match the financial year.
This term refers to when you report GST. Most sole traders should use the “Payments basis (cash)” way because it accounts for GST when payments are received, so there are no problems with income that hasn’t been paid.
Step 2: Keeping Accurate Records
Accurate record-keeping is vital for filing GST returns. You should maintain:
- Invoices and receipts: For both sales and purchases.
- Accounting software: Tools like Xero or MYOB can automate GST calculations.
- Mileage records: If claiming vehicle expenses.
- Ensure all records are organised and easily accessible for audits.
Step 3: Calculating GST
GST is calculated based on your taxable supplies and purchases:
- Add up your total sales (excluding GST). Multiply this by 15% to find your output GST.
- Add up your GST-inclusive purchases and subtract the GST portion to find your input GST.
- Subtract input GST from output GST to determine your net GST payable or refundable.
Example:
Output GST (sales): $15,000
Input GST (purchases): $5,000
Net GST = $15,000 – $5,000 = $10,000 (amount payable to Inland Revenue).
How to Calculate GST on Expenses
If you are GST-registered, you can reclaim the GST portion of your business expenses in your GST return. Here’s how to calculate it:
Determine the GST Amount:
To find the GST portion of an expense, use this formula:
GST Inclusive Price × 3 ÷ 23 = GST Amount.
For instance – If your car insurance costs $250, the GST amount is $32.61, while the GST-exclusive price is $217.39.
When filing your GST return, total the GST amounts for all eligible transactions within the period and report this as “Total GST Paid.”
Step 4: Filing Your GST Return
Once your calculations are complete, log in to your myIR account:
Navigate to the GST section and select “File GST Return.”
Enter the required details, including:
- Total sales.
- Total purchases.
- GST collected and GST paid.
- Confirm if you owe GST or are eligible for a refund.
Important Deadlines
GST returns are normally due on the 28th of the month following your filing period. Late filings or payments may incur penalties.
Step 5: Payment or Refund
If you owe GST, you can make a payment via bank transfer, online banking, or through Inland Revenue’s myIR platform. Be sure to include your IRD number and the relevant GST period as references.
If you are due a refund, Inland Revenue will deposit it directly into your registered bank account.
Avoiding the Most Frequent Errors
Here are some avoidable errors during filling your GST –
- Not include supplies with zero-rated: Even if a sale is zero-rated, it must still be declared.
- Expenses that are considered personal: GST deductions are only available for expenses that are directly relevant to the business.
- Absence of timely filing of documents: In the event that deadlines are missed, penalties and interest costs may be incurred.
Methods to Make the GST Return Process Easier
- Utilise software for accounting: It provides accuracy while automating the computation process.
- Notify yourself of upcoming due dates: Prevent late submissions by marking the relevant dates in your calendar.
- Seek the assistance of a professional: When dealing with such situations, it is best to seek the advice of a tax advisor.
Why the GST Filing Is Important? It Is Your Company
Filing your GST return in the correct manner helps you retain a good standing with Inland Revenue and guarantees that you are in accordance with New Zealand legislation. Furthermore, in addition to providing improved financial insight into your business operations, proper GST returns are essential.
By following this step-by-step guide, you can learn how to do GST return and simplify the process and avoid common pitfalls. Whether you are a sole trader or a larger business, staying on top of your GST obligations ensures smooth operations and financial transparency.
If you need further assistance, consider getting in touch with us.
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