Starting a company in New Zealand comes with many obligations, among them is knowing and following Goods and Services Tax (GST) requirements. Considered a consumption tax paid on the provision of goods and services, GST is a major component of the national tax system. Navigating GST return filing might appear difficult for entrepreneurs, particularly for those fresh to taxation and compliance obligations.
This post covers the essentials of GST return filing for New Zealand startups, including registration, GST calculation, filing processes, and best practices to ensure compliance.
GST in New Zealand
Most goods, services, and other taxable commodities sold in New Zealand pay GST at 15% tax. Businesses registered for GST pay this tax on behalf of the government and must routinely file GST returns are submitted to Inland Revenue (IR). As a tax-neutral system for companies, GST is charged to consumers while companies can claim reimbursements for GST paid on operating expenses.
When must a startup register for GST?
Startups must register for GST under certain conditions:
Mandatory Registration
GST registration is required whether the turnover of your company is likely to be higher than NZD 60,000 in the next 12 months or if it surpasses this level already in the last 12 months.
Voluntary Registration
You can register voluntarily even if your company falls short of the NZD 60,000 level. For entrepreneurs in particular, this helps them to claim back GST on business expenses.
How to register for New Zealand’s GST
Registering for GST is not difficult, if you follow these guidelines:
- Determine Your GST Accounting Basis
Three ways exist in New Zealand to handle GST:
- Invoice Basis: As an invoice is issued or received, you record GST.
- Payments Basis: GST is recorded either received or paid for.
- Combining the two, hybrid basis lets you consider purchases on a payments basis and sales on an invoicing basis.
Set Up Your Business with Inland Revenue
- Create an Inland Revenue myIR account on the website.
- Send your company information including estimated turnover, NZBN (New Zealand Business Number), and the selected accounting basis.
Select Your Frequency of File Organisation
Your turnover determines the regularity with which you file GST returns:
- Monthly: advised for companies with heavy turnover.
- Two-Monthly: Common option for most businesses is a two-month schedule.
- Six-Monthly: Designed for companies whose yearly turnover comes under NZD 500,000.
File GST Returns: How to do it
Startups must routinely submit GST returns to document the tax paid and claimed once registered. Here is a detailed guide
1. Record GST on Purchases and Sales
- Make sure your invoices properly show the GST component—15% of the overall cost.
- Maintaining precise records of purchases can help you to claim GST on business operations related expenses.
2. Determine GST. Payable GST owed differs from:
- Sales Tax: The GST you get from consumers
- Input Tax, or GST on Purchases: The GST you pay for company expenses
Calculating an example:
Sales GST Collected: NZD 10,000
Purchase GST Paid: NZD 4,000
GST payable: NZD 10,000 – NZD 4,000 = NZD 6,000
3. File GST Returns Online: Your myIR account handles GST returns.
- Enter into your myIR account.
- Go to the GST area and pick “File GST Return.”
- Input the pertinent information: total sales, total purchases, GST paid and collected.
- Review your entries then turn in the return.
4. Pay any GST due.
Pay Inland Revenue the difference by the due date if your GST owing exceeds the GST claimed. Direct debit or internet banking allow one to pay.
5. Demand a refund—if appropriate
You can be qualified for a refund if the GST paid on purchases more than the GST gathered on sales. Once they have looked over your return, inland revenue will handle the refund.
Approaches for Filing GST Returns
Avoiding penalties depends on meeting deadlines. Your chosen filing frequency will determine both GST return and payment deadlines:
- Monthly filing due on the 28th of the following month.
- Two-Monthly Filing: Due on the 28th of the month that the period ends. For the period running January 31, for instance, the due date is February 28.
- Due on the 28th of the month following the period ends, six-month filing.
Common GST Filing Challenges for Startups
Management of GST compliance presents special difficulties for startups. Here’s how one might go over them:
Maintaining Accurate Documentation
Maintaining accurate records of sales and expenses, use accounting programs like Xero or MYOB. Frequent record reconciliation guarantees accuracy.
Knowing Claimable Fees
Only claim GST on purchases directly connected to your business. For office materials, tools, and professional services, for example, GST can be claimed; for personal expenses, GST cannot.
Controlling Cash Flow
Plan ahead for GST payments to prevent difficulties with cash flow. Think about saving some of your earnings to pay for GST obligations.
Dealing with mistakes
Should you find a mistake in a submitted GST return, you can fix it in your next return or call Inland Revenue.
Keeping Current on Tax Laws
GST rules and tax legislation could change. See a tax consultant or subscribe to Inland Revenue updates to keep current.
Best Practices for Compliance with GST
Automate Your Account Writing : Calculate and file automatically with GST-compliant accounting tools.
Engage a tax professional: Especially if your business conducts complicated transactions or works in several sectors, a tax advisor can offer professional advice.
Review often: Review your GST systems often to find and fix inefficiencies.
Separate Business and Personal Finances: Maintain separate accounts for business transactions to simplify GST reporting.
GST for Specific Industry Startups
Startups in some sectors could find unusual GST situations:
Export Businesses: Although you can still claim GST on associated expenses, GST on exported items is normally zero-rated, hence no GST is levied to overseas consumers.
Online businesses like E-commerce: Make sure your internet sales are GST compliant, particularly if you are selling to consumers overseas or New Zealand.
Penalties for Non-GST Compliance
Ignoring GST returns or late payment of GST could lead to:
- Late penalties for late filings.
- Interest rates on overdue debt.
- Inland Revenue’s audit or probe.
Make sure you file and pay on time to avoid these effects; also, take care of any Inland Revenue notices by responding promptly and truthfully
GST return filing is a fundamental aspect of running a startup in New Zealand.
Although it could seem difficult at first, knowledge of the fundamentals and application of effective techniques will help one to control it. There are several strategies to streamline GST compliance from selecting the appropriate accounting basis to applying automated technologies and consulting experts.
Good GST control not only guarantees compliance but also offers financial transparency for startups, therefore freeing entrepreneurs to concentrate on expanding their companies. Following the advice and suggestions in this book will help you confidently negotiate the GST system and steer your company towards success.
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