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Calculate GST adjustments on purchases and expenses

This section describes how to calculate adjustments that are added in with GST on purchases and expenses. We also refer to them as credit adjustments. These adjustments include:

Private assets used in business (annual or period-by period-adjustments)

If you purchase goods and services to use mainly for private purposes, you cannot claim GST on the purchase. However, if you use these goods or services in your taxable activity, you can make an adjustment to claim back some GST:

  • when there has been a change from private to business, or
  • when a private asset is acquired that is sometimes used for business purposes.

To make an adjustment, you can choose one of three options:

  • a one-off adjustment, if the asset has a value of $18,000 or less
  • period-by-period adjustments, or
  • an annual adjustment.
Note

If you make period-by-period adjustments, record them in the GST return that covers the time the goods and services were used for business purposes.

Annual adjustment of private assets used in business

The table below explains when you make the GST annual adjustment for private goods or services used in business depending on whether a tax agent prepares your income tax return.

If you... then you can make the adjustment in the GST...

don't have a tax agent

return covering the date your income tax return is filed or due to be filed.

don't have a tax agent and income tax return is due on 7 July

return that covers that date.

have a tax agent

return covering the earlier of:

  • the date your income tax return is filed, or
  • 31 March after the due date for your income tax return.

have a tax agent who has an extension of time to file your income tax return

period that covers that date your income tax return was prepared or filed.

How to calculate GST adjustments on private assets used in business

Find out how to:

Adjustments for home office expenses

If you use an area set aside in your family home for work purposes, you may be able to claim GST on part of the costs of running your home. You must:

  • set aside an area principally for business use, and
  • keep full records of all expenses you wish to claim.
Note

You can claim the adjustment either annually or on a period-by-period basis.

How to calculate an adjustment for home office expenses

To calculate your GST adjustment you need to work out the percentage of the area that is used for work against the total area of your home.

The table below explains how to calculate an adjustment for home office expenses and provides an example.

Scenario: Erana has an office set aside in her private home. The office is 10 square metres of a 100 square metre house. Therefore, the business percentage is 10%. The total house expenses including GST for the taxable period were $1,000, including:

  • rates $500
  • insurance (house) $200
  • electricity $300
Step What to do Example
1

Work out the value of the business (taxable) use.

$1,000 x 10% = $100

2

Divide the amount from Step 1 by 9. This is your GST adjustment.

  • Show this GST adjustment on your GST adjustments calculation sheet (IR372) under "Business use of private/exempt goods and services for annual or period-by-period adjustments".
  • Transfer the totals to Box 13 on your GST return.

$100 divided by 9 = $11.11

Adjustments for telephone expenses

Telephone line rental

The table below explains how to claim for telephone line rental.

If you ... then you...

have both a commercial and domestic line rental

may claim the GST on the full cost of the commercial line. Include the commercial rental cost in Box 11 on your GST return.

 

Note

You can't claim any part of the domestic rental.

only have one telephone line rental that is used both for business and private purposes

may claim GST on 50% of the cost. Show 50% of the rental in Box 11 on your GST return. This applies whether the line is commercial or domestic.

want to claim more than 50% of your rental

must show that the actual business use of your telephone is greater than 50%.

 

Note

The proportion of business toll calls to private toll calls may be a factor in determining the overall business use. However, this can't be used as the sole evidence. Other factors considered are the type of business you are in and the number of people living in the house.


Note

Farmers may claim the full cost of telephone rental that is used for business and private purposes. Include the full rental in Box 11 of the GST return.

Business-related tolls

GST on these toll calls can be claimed in full.

Mobile phones

If you have a mobile phone that is intended for business use, you may claim GST on the total set-up cost.

If your mobile phone is also used for private use, you can claim GST on the following running costs:

  • total fixed cost of running the phone, and
  • the cost of the business calls.

Other credit adjustments

Bad debts written off

If you make and account for a supply and later write off all or part of the consideration as a bad debt, you may make a credit adjustment in the period you write it off.  

The table below explains how to write off the debt depending on your accounting basis.

If you use the... then you...

invoice or hybrid basis

account for a sale when you issue an invoice. If you have already included the GST on the sale in a previous return, and then later write off the debt, you will use this adjustment.

payments basis

won't account for the GST on a sale until you actually receive it. If you don't receive payment and write the debt off, you cannot claim a deduction, as you haven't included the GST on the sale in any GST return.

 

Note

For hire purchase agreements and door-to-door sales, you may make an adjustment if you use the payments basis.  For more information, see Special supplies.

How to calculate a credit adjustment for bad debts written off

Show one-ninth of the full amount you have written off on the calculation sheet, and include it in Box 13 of your GST return. You don't need to send in any documents supporting the write-off, but you do need to keep a record of the steps you took to recover the debt. This might include:

  • debtors' ledger showing the date the invoice was issued
  • letters from solicitor/debt collector trying to recover the debt, or
  • bad debts ledger showing the write-off.
Important

The debt(s) must be written off. You cannot make a claim for provision for bad debts.


Example: How to calculate a credit adjustment for bad debts written off using the invoice basis

Brendon, who uses the invoice basis, issues Carl with an invoice dated 26 August 2006 for electrical goods worth $135 including GST. Brendon accounts for the sale in the return for the period ending 31 August. In the following March, with no hope of receiving payment from Carl, Brendon writes off $135 as a bad debt.

Brendon shows $15 ($135 divided by 9) on his GST adjustments calculation sheet (IR372) under "Bad debts written off" and includes it in Box 13 of his GST return for the taxable period ending 30 April 2007.

How to calculate a credit adjustment for a bad debt when GST wasn't charged on the full price

If the bad debt was for a supply when GST wasn't charged on the full price (such as the fifth week of a hotel stay, or a hire purchase sale), the GST adjustment is not simply one-ninth of the bad debt.

To calculate the amount to include in Box 13 of your return you'll need this formula:

bad debt written off divide by total consideration x GST included in consideration = GST adjustment

Example: How to calculate a credit adjustment for a bad debt when GST wasn't charged on the full price

Sue has been staying at the Holiday Hotel for six weeks. The total bill was $6,005.57. Sue leaves, still owing $1,000. Later the hotel writes the $1,000 off as a bad debt. $602.57 is the GST included in the total bill. In the return covering the time of the write-off they must make an adjustment:

$1,000 divided by $6,005.57 x $602.57 = $100.33


GST content shown on New Zealand Customs invoices

The New Zealand Customs Service (Customs) collects GST when goods:

  • are imported into New Zealand. GST is charged on the landed value (including insurance and duties) for the goods, as assessed by Customs.
  • manufactured in New Zealand are removed from a licensed manufacturing area by a purchaser at "in bond" prices (such as liquor and tobacco). GST is charged on the excise duty.

Documents issued by Customs (such as a Customs import entry form C4, a Deferred payment of duty statement or Broker account statement) do not have to meet all the tax invoice requirements. These documents can be used to support a claim for a GST credit. Remember, you must hold these supporting documents to make a claim.

Important

Don't include imported goods under Box 11 on your GST return.

When do you account for GST paid to Customs?

The table below explains when to account for GST paid to Customs depending on your accounting basis.

If you use... then you...

invoice basis

claim the GST content shown on the Customs document in Box 13 of the GST return for the period you receive the invoice or make a payment, whichever is earlier.

payments or hybrid basis

claim the GST content shown on the Customs document in Box 13 of the GST return for the period you make the GST payment.

Reference: If you would like to know more about GST on imported goods contact the New Zealand Customs Service on 0800 428 786.

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Date published: 17 Apr 2007

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