Goods and Services Tax (GST) is a consumption tax applied to most goods and services sold or consumed in New Zealand. At 15%, GST is included in the price of nearly everything you buy, making it one of the most significant taxes in the New Zealand economy.
GST was introduced in New Zealand on 1 October 1986 by the Fourth Labour Government as part of comprehensive economic reforms. It replaced the old wholesale sales tax system with a broader, more efficient consumption tax.
GST serves several important purposes in New Zealand's tax system:
Unlike income tax which is paid by individuals, GST is collected by businesses at each stage of the supply chain. Businesses charge GST on their sales (output tax) and claim back GST on their purchases (input tax), remitting only the difference to Inland Revenue.
GST registration is mandatory if:
You can also register voluntarily if your turnover is below $60,000. Many businesses do this to:
Once your turnover exceeds $60,000, you must register for GST within 21 days. Operating above this threshold without registration can result in penalties from IRD.
Most goods and services in New Zealand are subject to the standard 15% GST rate, including:
Some supplies are zero-rated, meaning GST applies at 0%. This is different from exempt supplies:
The difference is crucial: If you make zero-rated supplies, you can still claim input tax (GST on your expenses). If you make exempt supplies, you cannot claim input tax.
A very small number of supplies are exempt from GST:
As a GST-registered business, you have several responsibilities:
Understanding GST calculations is essential for pricing, invoicing, and filing returns. There are two main calculations you'll perform regularly: adding GST and removing GST.
When you need to add GST to a price (converting from GST-exclusive to GST-inclusive), you multiply by 1.15 or add 15%:
Or using the quick method:
When you need to determine how much GST is included in a total price, you divide by 1.15 or use the fraction method:
Or using the fraction method to find GST directly:
This fraction comes from the mathematics of GST: If the base is 100, GST at 15% makes the total 115. The GST portion (15) divided by the total (115) = 15/115 = 3/23. This gives you the GST component of any GST-inclusive amount.
| Scenario | GST-Exclusive | GST Amount | GST-Inclusive |
|---|---|---|---|
| Small service | $100 | $15 | $115 |
| Medium project | $5,000 | $750 | $5,750 |
| Large contract | $50,000 | $7,500 | $57,500 |
| Major project | $200,000 | $30,000 | $230,000 |
Your GST return calculates the difference between GST you've collected (output tax) and GST you've paid (input tax):
If your input tax (GST on purchases) exceeds your output tax (GST on sales), you'll receive a refund from IRD. This commonly happens when:
IRD can audit your GST returns. Keep all tax invoices, receipts, and records for at least seven years. Incorrect GST claims can result in penalties, interest charges, and potential prosecution for serious cases.
Once registered for GST, you must file returns regularly with Inland Revenue. Understanding the filing process, deadlines, and requirements is essential for staying compliant.
You can choose how often you file GST returns based on your business needs:
You can change your filing frequency by notifying IRD. Changes typically take effect from the start of your next taxable period. Choose a frequency that suits your cashflow and administrative capacity.
When you're GST-registered, you must issue tax invoices for supplies over $50. A compliant tax invoice must include:
You cannot claim input tax on expenses without a valid tax invoice. Even if you've paid GST on a purchase, IRD won't allow the claim without proper documentation. Always request tax invoices from suppliers.
GST is accounted for when you issue an invoice (for sales) or receive an invoice (for purchases), regardless of when money changes hands.
GST is accounted for when money is actually received or paid. Available for businesses with turnover under $2 million.
A combination where you account for sales on invoice basis but purchases on payments basis.
As a GST-registered business, you can claim back GST on most business expenses. Here's what qualifies:
Let's explore practical scenarios showing how GST works for different types of businesses in New Zealand.
Situation: Andrew runs a small building business, providing labor services. In January, he worked on four different projects at various hourly rates. He needs to calculate his GST obligations for his monthly return.
Situation: Susan runs a freelance graphic design business from home. She files GST returns two-monthly. During the March-April period, she had several projects and various business expenses.
Susan uses 20% of her home exclusively for business. She can claim 20% of rent/mortgage interest, power, and internet costs. She keeps a logbook showing her office space measurements and usage.
Situation: John owns a medium-sized construction company. In April, he completed four projects involving both labor and materials. He files monthly GST returns.
Situation: Tim is a commercial fisherman in Paihia selling to local restaurants. In December, he made several large sales but didn't receive payment that month. He still incurred business expenses and needs to file his GST return.
Tim uses invoice basis accounting. He must pay $25,350 GST even though he hasn't been paid by customers. If he used payments basis accounting (available for turnover under $2m), he would owe $0 GST collected and could claim a $3,900 refund. However, he'd need to account for the GST when customers eventually pay.
Situation: Maria owns a busy cafe in Wellington. She files GST returns monthly and deals with daily cash and EFTPOS sales. May was a typical trading month.
Maria's prices already include GST (as required for retail). She uses her EFTPOS terminal's daily reports to track sales accurately. She can't claim GST on food she or her family consume from the cafe - that's private use, not a business expense.
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