GST is a tricky tax to get to grips with for those of us who don’t deal with GST on a day-to-day basis. Here are a few of the errors I see frequently:
Registering for GST. For new or smaller growing businesses deciding when and whether to register for GST can be tricky. If your customers are private individuals and you register too early you might be voluntarily giving up thousands of dollars. If, on the other hand, your customers are GST registered you should register immediately to get the GST back on your outgoings. Register too late and surprise surprise, the IRD will punish you severely!
Claiming GST on Overseas Transactions and Unregistered Suppliers. GST cannot always be claimed on goods and services sourced from overseas. Often, errors on overseas transactions may occur unintentionally - for instance when goods or services are purchased online and in addition, it’s more common to use Aussie suppliers these days. It’s always best to check your invoices to see if NZ GST has been charged. Remember as well that many sub-contractors and smaller NZ businesses are not GST registered, which means the GST cannot be claimed.
Buying Assets or Equipment. When you are purchasing assets or equipment for business use you may claim a GST deduction but the amount you can claim may vary depending on whether you are a company, sole trader or partnership. Where the asset is to be used 100% for business purposes it is normally fully deductible regardless of your trading structure. However, where there is private use e.g. motor vehicles, sole traders and partnerships must make an adjustment to the GST claimed for the expected private use component. When a company is involved, you can normally claim all the GST but you will need to pay some GST on every future GST return to compensate the IRD for that private use.
Hire Purchase and Leasing. If you’re buying assets or equipment using asset finance getting the GST correct often causes problems. If you’re taking ownership of the assets or equipment (or if there’s an option to take ownership) you can claim all the GST up front (subject to any private use above) but if you just have the right to use the assets or equipment for a limited period the GST is claimable on each payment. There are all sorts of leasing deals out there so watch out, because when it says it’s a lease it may not be! Watch out too because sometimes GST only applies to part of the regular payment.
Second-Hand Goods. When you purchase a second-hand item for business use from a vendor who is not GST registered you can still generally claim the GST. However, if you’re the vendor in a different capacity i.e. you are selling something to your company or you’re buying from a related party there are complex rules to follow to stop you gaining what the IRD would consider to be an unfair advantage so always seek advice from an experienced tax adviser.
Whatever aspects of GST you’re dealing with, if in doubt it’s always best to seek advice so if you prepare your own GST Returns, build a relationship with a good accountant experienced in GST. Better still find an accountant who throws in free tax and business advice as part of the deal!
The information provided here is of a general nature and only applies in New Zealand. You should not act upon this information without obtaining appropriate professional advice and only after a thorough examination of your particular circumstances by an experienced tax adviser.