GST compliance: what SMEs need to know

GST (Goods and Services Tax) is a tax added to goods and services in New Zealand in certain situations. The first point to note about GST is that there are a lot of ‘ifs, buts and maybes’.

We recommend you seek help from an accountant to ensure your GST is set up correctly and if you would liketo prepare your GST returns yourself, have your accountant check your first few returns to ensure you are on the right track.

Who is required to be GST registered and what does that mean?

If your self-employed or business income has exceeded $60,000 in the last 12-months, or is expected to be $60,000 or more for the coming 12-months, you are generally required to register for GST.

Once you are GST registered, the regular completion of GST returns is simply a process of working out the balance between GST you have charged and GST you have paid. The difference between the two is either the amount you pay Inland Revenue or the refund you receive from them. For example, you charge a customer say $115 (including GST) for a good or service, you pay the $15 GST to Inland Revenue via your GST return. When you purchase a good or service for use in your GST registered business for say $53.67 (including GST), you claim back $7 GST in your GST return. In this simple case, you pay the net amount of $8 ($15 – $7) to Inland Revenue when you file your GST return.

Invoices and record keeping 

You need to keep certain information, such as GST return workings and copies of invoices and other supporting documents for your income and expenses for 7 years. An easy way to do this is by using an online software package such as Xero.

A key benefit of Xero, and other similar accounting systems, is minimising data entry. The software downloads your bank transactions which you then code to what each transaction relates to. Another benefit of accounting software is the ability to electronically upload copies of invoices, or other paperwork, to the transaction, saving you from having to keep hard copies. Accounting software, such as Xero, simplifies your GST returns enabling you to prepare and file your GST returns from within the software.

If you have given your accountant access to your Xero file, they can access the supporting documents you have attached which assists when preparing your GST returns and annual financial statements.

If you are subject to an audit or review by Inland Revenue, your accountant will have easy access to any paperwork to provide to Inland Revenue if it is saved in Xero. Inland Revenue have a useful checklist of the business records you should keep.

New rules came into effect in 2023 which changed some terminology to ‘taxable supply information’ and ‘supply correction information’, but most businesses are still using the old terminology of ‘tax invoice’ and ‘credit note’ which is fine to do.

Accounting basis and periods

In some cases, there is flexibility around the accounting basis under which you account for GST, such as invoice or payments basis, and how often you file GST returns. We recommend checking with your accountant about whether you are on the best accounting basis filing frequency for your circumstances.

Expenses

Expenses need to be business related in order to be claimed in your GST return. They also need to have GST charged on and a copy of the invoice (or similar) retained. Some expenses do not contain GST such as wages, financial services (bank fees/interest/loan repayments), residential accommodation and overseas travel. Each time you record a payment as a particular expense type, ensure you are checking the invoice or receipt you have from the supplier to make sure GST is included. If the supplier is not GST registered, they will not be charging you GST and in most cases you will therefore not be able to claim GST.

Credit card surcharges

These can be complex. You may think if you charge these to your customers that GST should not be included as it is a financial service. But in a lot of cases these surcharges are treated as part of the underlying good or service. This means most credit card surcharges should include GST unless you are a financial services provider.

GST adjustments

Your accountant may give you GST adjustments after they have prepared your annual financial statements or tax return. These don’t necessarily mean errors have been made in the GST return; some are adjustments required annually such as FBT reimbursements, entertainment, private use of motor vehicle and home office. If you use Xero, your accountant may make the adjustments in Xero for you so they will automatically flow into your next GST return as late claims.

Property

GST on property transactions is complex. The figures involved with property are usually large, and the GST and income tax rules on property are complicated. Although if you are buying or selling your family home, or a long-term residential rental property, there should be no GST implications. If you are buying or selling another property, we strongly recommend seeking specialist tax advice from a tax consultant such as Nexia New Zealand. Ask your Nexia advisor to check the sale and purchase agreement as real estate agents are not tax specialists and may not complete the Schedule 2 correctly for your situation.