The information in this blog is of a general nature and only applies in NZ. Please obtain appropriate professional advice before acting on any of these suggestions. Your particular circumstances need to be thoroughly examined by an experienced tax adviser.
As a GST registered entity, the typical business owner is merely acting as a tax collector on behalf of the IRD. This is due to the fact that GST is only a cost to the final consumer, not to the GST registered business owner who can reclaim the GST he or she pays on purchases of goods and services.
For example, if you buy coffee or tea for at home, you cannot reclaim the GST, however, if you buy coffee or tea for your office, you can. In return for being able to reclaim the GST on purchases, a GST registered business owner must add GST to the invoices they issue. They must collect it, temporarily hold the GST and then pay it to the IRD — after deducting the GST reclaimable on purchases and other business expenses.
Knowing when to register is very important for new or smaller growing businesses. If your customers are GST registered, early GST registration is best because that way, you maximise the GST reclaimable on purchases and other expenses. However, if your customers are the final receivers of the goods or services and cannot reclaim the GST, you may be better off delaying GST registration as long as you can, as this helps you keep your prices lower to get more business or set your prices at the equivalent GST-inclusive level and keep the additional money yourself.
Decide on how often you should prepare your GST returns. Monthly is best if you’re going to get refunds but otherwise bi-monthly is the most common choice. Six-monthly can be challenging as your GST amount might be mounting up too high or it’s difficult to remember what is what when trying to do the return.
The choice of GST registration basis is an important decision as well. If you register on the invoice basis you need to pay the GST on all your customer’s invoices even if they haven’t paid yet. However, for businesses such as exporters or retailers (who don’t give credit) it may be better to register on an invoice or hybrid basis.
Although GST is straightforward for most business owners, there are a whole heap of complexities that are best handled by an experienced business accountant who deals with business owners, so seek advice if you’re unsure. Better still, get your accountant to prepare or check your GST returns. It’s total peace of mind and if you choose the right accountant, it’s worth every dollar you pay!