Key takeaways

  • GST is a 15% tax added to most goods and services sold in New Zealand. As a registered business, you collect it from customers and pass it to IRD.
  • GST registration is compulsory once your turnover exceeds $60,000 in any rolling 12-month period.
  • You file returns monthly, two-monthly, or six-monthly. Two-monthly is the most common for small businesses.
  • Most small businesses use the payments basis, which means you only account for GST when money changes hands.
  • Charging GST without being registered is illegal and IRD takes it seriously.

Here is a no-jargon walkthrough of how it works, when you need to register, what you can and cannot claim, and how to stay on top of it.

What is GST and how does it work?

GST stands for Goods and Services Tax. It is a 15% tax added to the price of most goods and services sold in New Zealand. As a consumer, you pay it every time you buy something.

As a business owner, your role changes. You collect GST from your customers and pass it on to IRD. You also get to claim back the GST you paid on business expenses, which means GST is largely a flow-through tax for businesses. The customer pays it, you collect it, you settle up with IRD.

When do I need to register for GST?

GST registration is compulsory once your business income exceeds $60,000 in any rolling 12-month period. That is not tied to the financial year. It is any consecutive 12 months. If you hit that threshold, you need to register. If you expect to hit it within the next 12 months, register proactively.

IRD can treat you as having been registered from the date you should have registered and apply interest and penalties to the GST owing. That can mean paying GST on sales you have already invoiced without GST included, which usually comes out of your own pocket.

Below $60,000, registration is optional. The main advantage of voluntary registration is being able to claim back GST on business expenses. The downside is extra compliance: regular GST returns and detailed records.

How do GST returns work?

When you file a GST return, you calculate the difference between the GST you collected on sales (output tax) and the GST you paid on business expenses (input tax). If you collected more than you paid, you owe the difference to IRD. If you paid more than you collected, IRD refunds the difference.

Refund situations are common in the first few months of a new business when you have lots of setup expenses but limited revenue. They also come up if you are exporting services or buying significant capital equipment. A GST refund hitting your account a few weeks after filing can be a useful cash flow boost.

How often should I file GST returns?

You choose how often to file when you register. The options are monthly, two-monthly, or six-monthly.

  • Two-monthly is the most common choice for small businesses. It strikes a balance between admin frequency and cash flow.
  • Six-monthly is available if your turnover is under $500,000. It means less admin but bigger amounts to deal with at each filing.
  • Monthly is useful if you regularly receive GST refunds (for example, exporters), because you get the cash back faster.

You can change your filing frequency once you are registered if your situation changes.

Should I use the payments or invoice accounting basis?

You also choose your accounting basis for GST. Payments basis means you account for GST when money actually changes hands. Invoice basis means you account for GST when invoices are issued, regardless of payment.

Most small businesses use the payments basis because it is simpler and means you do not owe GST on invoices that have not been paid yet. If a client takes 60 days to pay, you do not have to fund their GST out of your own cash flow in the meantime.

Invoice basis becomes mandatory if your turnover exceeds $2 million. Below that, you can choose the basis that suits your cash flow best.

What can I claim GST back on?

You can claim GST back on most business expenses. Supplies, equipment, services, vehicle costs (business portion), phone and internet (business portion), software subscriptions, professional fees, and home office costs (business portion).

You cannot claim GST on things that are GST-exempt: residential rent, financial services, and most private expenses. You also cannot claim GST on purchases from non-GST-registered suppliers. Always check that the supplier’s GST number is on their invoice.

Do I need a tax invoice to claim GST?

The rules changed in April 2023. The old “tax invoice” requirement was replaced with “taxable supply information” (TSI), which is basically a list of details about each purchase. The detail required scales with the purchase amount.

  • Under $200: Minimal records. A bank statement or receipt is usually enough.
  • $200 to $1,000: Supplier name and GST number, date, description of what was supplied, and the GST amount or a statement that GST is included.
  • Over $1,000: All of the above, plus your name and address.

The words “tax invoice” do not need to appear on the document. Many suppliers still use them, which is fine, but the legal requirement is now about the information held, not the document title.

What are zero-rated supplies?

If you sell services to clients based overseas who have no NZ presence, those sales are usually zero-rated for GST. That means you charge 0% GST but still include the sales on your return. You can still claim back GST on expenses related to those sales.

This is a genuine advantage for businesses that export services. A consultant invoicing an Australian client at $5,000 charges no GST on the sale but can still claim GST on their software, equipment, and office costs. The result is regular GST refunds rather than payments.

What are the most common GST mistakes?

  • Not registering when you hit the $60,000 threshold.
  • Charging GST without being registered. This is illegal.
  • Mixing up GST-inclusive and GST-exclusive pricing on invoices.
  • Forgetting to deregister when you close or significantly scale down your business.
  • Not accounting for GST on assets you keep when you deregister.
  • Claiming GST on personal expenses like groceries or family meals.
  • Missing the input tax claim on the business portion of personal expenses like phone bills.

How can I make GST less painful?

GST does not have to be painful if your bookkeeping is current. The pain comes from leaving everything until the return is due, then trying to reconstruct two months of activity from receipts and bank statements.

Afirmo calculates your GST position in real time based on your recorded income and expenses. When it is time to file, the numbers are already there. No last-minute scramble.

Frequently asked questions

What happens if I cross the $60,000 threshold mid-year?

You must register for GST within 21 days of crossing the threshold. Your registration takes effect from the date you became liable. From that date, you charge GST on sales and can claim GST on business expenses. Sales made before the registration date generally are not subject to GST, though specific rules can apply.

Can I claim back GST on business expenses paid before I registered?

In limited cases, yes. You can usually claim GST on stock or assets you held at the time of registration if they were purchased to be used in your taxable activity. Operating expenses paid before registration generally are not claimable. Talk to your accountant to confirm.

Do I charge GST to overseas clients?

Generally no, if the client is based overseas, has no NZ presence, and the services are consumed offshore. Those sales are zero-rated. You still include them on your GST return as zero-rated supplies, and you can still claim GST on related business expenses.

Can I deregister for GST if my turnover drops below $60,000?

Yes. If your turnover drops below the threshold and you no longer want to be GST registered, you can apply to deregister. Be aware that you may need to account for GST on any business assets you keep, based on their market value at deregistration.

Afirmo tracks your GST position in real time and prepares your return automatically. Start a free trial at afirmo.com.