GST Registration in New Zealand: When and How to Register

The $60,000 GST threshold: a rolling 12-month test

Inland Revenue's test looks both backwards and forwards. You must register if your turnover was at least $60,000 in the last 12 months, or you expect it will be at least $60,000 in the next 12 months. This is not tied to the tax year. Check it every month, not just at 31 March.

Only taxable supplies count. Exempt supplies such as residential rent and financial services (interest, loans, bank fees, shares) are not subject to GST and are left out of GST returns, so a landlord with $80,000 of residential rent does not have to register on that alone. There is a second trigger that catches people out: if you add GST to your prices, you must register whatever your turnover.

Example: a web designer bills $4,500 a month, which is $54,000 a year and under the threshold. In June she signs a $9,000 contract to be invoiced over the next few months. Her expected turnover for the next 12 months is now $63,000, so she has crossed the forward-looking test and must register, even though her last 12 months were under $60,000.

Voluntary GST registration: pros and cons

You can choose to register below $60,000 if you carry on a taxable activity. Inland Revenue lists the trade-offs: you can claim GST on business expenses, it may make dealing with suppliers easier, and regular returns help you keep on top of your paperwork. On the other hand, you must add GST to your prices, file returns regularly and pay penalties if returns or payments are late.

Voluntary registration usually pays off when your customers are GST-registered businesses (they claim your GST back, so the price rise costs them nothing) or when you have large start-up costs. Buying $11,500 of equipment, GST-inclusive, lets a registered business claim $1,500 back. It suits consumer-facing businesses less well: a $1,000 job becomes $1,150 to a householder, or you absorb the $150 yourself.

How to register for GST in myIR

Inland Revenue's registration instructions are for myIR: log in, choose "I want to...", then under "Registration, application and enrolment" select "Register for Goods and services tax (GST)". Inland Revenue says it processes requests within 10 working days and contacts you if it needs more. Your GST number is the same as your IRD number, and the GST account appears in myIR once registration is confirmed. If you are unsure whether you need to register at all, Inland Revenue's guide GST – do you need to register (IR365) walks through the test.

• The IRD number of the person or entity registering. A sole trader uses their personal IRD number.
• Turnover for the last 12 months and expected turnover for the next 12.
• Your business industry classification (BIC) code.
• Your chosen filing frequency and accounting basis (see below).

Choosing a filing frequency

Your filing frequency decides how often you file a return. Inland Revenue suggests two-monthly for people who find regular filing keeps them on top of paperwork, six-monthly for businesses with few sales and purchases (only two returns a year, but each one covers six months of trading), and monthly for businesses likely to get regular GST refunds.

Your GST periods should line up with your income tax balance date. With the usual 31 March balance date, two-monthly periods end in odd months (May, July, September, November, January and March), and six-monthly periods end on 30 September and 31 March. You can request a change of frequency later in myIR.

Payments, invoice or hybrid basis

The accounting basis decides when a sale or purchase counts. On the payments basis, available if your total sales are $2,000,000 or less in the last 12 months, you account for GST when money actually changes hands, which protects cash flow if clients pay late. On the invoice basis you account for GST when you issue or receive an invoice, even if it is unpaid. The hybrid basis uses invoices for sales and payments for expenses; Inland Revenue notes small businesses rarely use it because you can owe GST on a sale before you are paid but only claim GST on costs once you pay them.

The basis also changes your late filing penalty: $50 for a late return on the payments basis, $250 on the hybrid or invoice basis.

Worked example: a first two-monthly GST return

Over April and May a registered tradesperson receives $23,000 including GST from customers and pays $5,750 including GST for materials and tools. GST on sales is $3,000.00 (three-twenty-thirds of $23,000). GST on purchases is $750.00. The return shows $2,250.00 to pay.

That return covers the period ending 31 May, so return and payment are due by 28 June. Keep the GST portion of every sale in a separate account. Many new businesses mistake it for income and come up short on the due date.

GST due dates and penalties

GST returns and payments are due on the 28th of the month after the period ends, with two exceptions: periods ending 31 March are due 7 May, and periods ending 30 November are due 15 January. You must file for every period, even with nothing to report, and Inland Revenue does not give extensions for GST returns.

Pay late and a 1% penalty applies the day after the due date, then a further 4% of the unpaid tax and penalty on the seventh day, plus use-of-money interest (currently 8.97%). If it is your first late payment in two years, Inland Revenue may give you a grace period.

Common GST registration mistakes

These are the mistakes that most often lead to back-dated GST or penalties.

• Watching only the tax year instead of the rolling 12 months, and registering late.
• Adding GST to invoices before you are registered. That alone means you must register, and Inland Revenue backdates registration only in exceptional circumstances.
• Claiming GST on private use: only the business share of a car, phone or home office is claimable.
• Forgetting that registration brings an income tax return: GST-registered individuals have to file an IR3 (IR56 taxpayers aside).