A practial GST guide for small business in New Zealand

1. Registration

The obligation to register for GST applies to both residents and non-residents who carry on taxable activities in New Zealand (s 8(2)). An individual or entity that supplies goods and services for more than $60,000 a year is required to register for GST (s 51). Any person who is carrying on taxable activities can voluntary register for GST, even if they do not reach the $60,000 threshold.

A person becomes liable to register at the end of 12 months period in which the $60,000 threshold is expected to be exceeded, or at the start of the 12 month period in which the $60,000 threshold is expected to be exceeded. Any person must apply for GST registration within 21 days of becoming liable to register.

2. GST registration: Group of companies, branches

A registered person can apply to register GST for any of his branches separately, if those branches maintain their own accounting systems and are in separate locations or carrying out different activities (s 56). The $60,000 threshold applies to the person across all branches, and not to each branch. Supplies of goods and services between the parent and branches are fully taxable. If a branch fails to file GST return, the parent body is responsible for liabilities incurred.

If two or more companies form a group of company for income tax purpose (accumulated 66% voting power test), then they can apply for group registration (s 55). Group registration is available where:

Each of the companies is a registered person; or
At least 75% of the total supplies made by the companies (in any consecutive 12 months period that includes that time) to person outside the group are taxable supplies.

All companies in the group are treated as a single entity for GST purpose. The transactions within the group are not subject to GST. A company should be chosen as the representative of the group. All taxable or non-taxable supplies made by members are deemed to be made by the representative, so is input tax.

3. Record keeping

All registered persons who perform taxable activities in New Zealand must keep sufficient records in the English language to enable IRD to ascertain the person’s GST liability (s 75). Copies of all records issued by the registered person must be kept in New Zealand for at least seven years after the end of the tax period to which they relate.

4.Tax Invoice

Tax invoices are different from ordinary invoices. Tax invoices contain all prescribed particulars.

For supplies worth more than $1,000 (including GST), the tax invoice must clearly show:

the words "tax invoice" in a prominent place
the name (or trade name) and GST number of the supplier
the name and address of the recipient of the supply
the date the invoice was issued
a description of the goods and/or services supplied
the quantity or volume of the goods and/or services supplied. Examples: litres of petrol, hours of labour, kilos of potatoes etc.

It must also have either:

the amount, excluding tax, charged for the supply
the GST and the total amount payable for the supply, or
a statement that GST is included in the final price if it has been.

2. For supplies worth between $50 and $1,000 (including GST), a simplified tax invoice is acceptable. It must clearly show:

the words "tax invoice" in a prominent place
the name and GST number of the supplier
the date the tax invoice was issued
a description of the goods and/or services supplied
the total amount payable for the supply, and
a statement that GST is included.

3. A tax invoice is not needed for supplies of $50 or less (including GST). However, it is best practice to keep records for these purchases, such as invoices, vouchers or receipts. At a minimum, record the date, description, cost and supplier of all purchases.

A supplier can only issue one original tax invoice. All other copies must be marked ‘copy only’. It is an offence to issued more than one original.

5. Return periods & due date

A registered person has a two-monthly taxable period unless an application for another category is made.

Smaller operations may adopt a six-monthly return period. Persons are eligible if, at the end of any month, the total value of taxable supplies (excluding GST):

Has not exceeded $500,000 in the preceding 12 months, or
Is unlikely to exceed $500,000 in the following 12 months period.

A taxpayer with more than $500,000 taxable supplies can maintain six-monthly return if the increase is resulted from sale of capital assets (eg. replace equipment, scaling down business). Also, he can maintain six-monthly return if the taxpayer has maintained a good tax record and his turnover is subject to seasonal, low volumes or high value cash flow peaks.

Returns have to be filed, generally, by the 28^th day of the month following the end of the taxable period. Two exceptions applies, first, the due date for taxable period ends on 30 November is 15 January. Second, the due date for taxable period ends on 31 March is 7 May. There is a due date calendar available on IRD website.

The due date carries over to the next working day if it falls on a weekend or public holiday.

6. Amendments to filed GST returns

If a taxpayer with a turnover of up to $250,000 p.a. finds he made an error and underpaid GST in previous GST return. If the error will result in $200 or less of tax to pay, it can be corrected in the next available GST return. For taxpayer with turnover of over $250,000 p.a., the error can be up to $500. The omission of an input tax claim can usually be rectified by including the claim in the next GST return.

IRD may issue an assessment, or an amended assessment, of the amount of GST payable. IRD can do this if they are not satisfied with a filed return, or a person fails to file GST return. The assessment can be based on the information supplied in return and on any other information in IRD’s possession.

7. Deregistration

Registration ceases when (s 52):

Taxable supplies are less than $60,000. The cancellation is optimal under this situation. Cancellation takes effect from the last day of the taxable period in which the application is processed.
IRD can cancel a registered person’s registration if it is satisfied that the registered person is not carrying on a taxable activity.

A person who ceases to be registered for GST has the following obligations:

The person must finish a final GST return covering the period from the beginning of the final taxable period up to the date of deregistration.
The person must pay off any GST payable.
All records must be kept for at least seven years (s 75).

8. GST on associated persons

The GSTA contains specific rules to ensure the supplies between associated persons are at arm’s length (s 2A). These rules require associated persons to deal with each other at market value and not manipulate the price between them to obtain a GST advantage(s 10(3)). Likewise, the time of supply for associated persons is determined when the goods are supplied by a registered person from an associate (normally it is determined at the time when the payment is made or an invoice is issued). The amount of any input tax credit that may only be claimed is limited to the amount of GST paid by the associated person.