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Goods and Service Tax (GST) is a tax on most goods and services in New Zealand. It is charged and accounted for at a rate of 12.5% on the selling price or market value of goods and services.

If you are registered for GST you collect GST when you make sales and then have to pay it to Inland Revenue Department (IRD) in your subsequent GST Return. Similarly when you make payments of GST you are paying GST out and you can claim this back from IRD in your next GST Return. When your business Financial Statements are prepared, the profit and loss items will be exclusive of GST.

If you are not registered for GST you should not add GST to your charges to customers. You cannot escape paying GST though if you are dealing with a tax registered business as they are compelled to add GST to their charges to you, and you do not have the ability to claim this GST back from IRD as you are not registered. You can, however, claim the full amount of the payments including GST charged by your suppliers in your business Financial Statements.

If you expect that your business turnover (sales) for the next 12 months will be $40,000 or more you must register for GST.

The GST Number of sole traders is the same as their personal IRD Number.

Should you choose the payments basis or invoice basis?

The major accounting bases for GST are:

• Payments basis

- you account for GST when a payment is made or received.

• Invoice basis

- you account for GST when an invoice is issued or any payment is made or received - whichever is earlier.

Most home business people go for the payments basis, as this means that the GST payment they make when filing their GST Return is reflected in their cash flow in that they have received the GST from their customers or paid it out to their suppliers

If you choose the invoice basis and you are operating in a profit situation you could well find that you are paying out GST to the IRD even though you have not received it from your customers (the Invoice Basis means you have to pay GST for the period you charged it on an Invoice to your customers), even if they have not yet paid you for that Invoice.

How often should you file a GST return?

If you are registered for GST, you have to file GST returns regularly based on the taxable period (which is the length of time covered by a GST Return) you select. Available periods are:

• Monthly- usually for large businesses
• Two monthly
• Six monthly

Most home business people go for the two month return period, which they find has the following advantages:

• The need to file is ever present in the minds whereas they may forget to file the six monthly return
• They may find they have spent all their money over a six month return period and because it is a longer period a greater amount of tax payable has accumulated.

When you register for GST you have the option to align your period end with the year end balance date end date. It is a good idea to agree to this option, as it will mean that your Accountant will be able to easy reconcile your GST for the year at the same time as preparation of your yearly Financial Statements, due to the fact that the two dates align with each other.

The tax invoice