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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:

Important - GST rate change affecting time of supply

Change of use adjustments

A GST adjustment is required for supplies when there is a change in their use. This could be goods and services intended originally for:

  • business purposes which may be used for making non-taxable supplies (that is, for exempt or private purposes)
  • exempt or private purposes which may be used in the registered person’s business.

The adjustment is made in the GST period when adjustment is calculated.

The tax rate for the adjustment will be one at the time the goods were acquired or imported by the registered person ie 12.5% before 1 October and 15% on and after 1 October.

Example: Roz uses her company car originally purchased in January 2008 for personal use. She uses the car personally for only 20% of the time each month. Roz makes an annual adjustment for this use in the six monthly GST return ending 31 July 2011.

As the car was purchased before 1 October 2010, Roz can still use the 12.5% rate when calculating her adjustment instead of the 15% rate.

Example: Milhouse uses his personal computer originally purchased on 5 October 2010 for his part time Comic book business. He uses the computer for this purpose for 40% of time each month.

Milhouse makes an annual adjustment for this use in the six monthly GST return ending 31 July 2011.

As the computer was purchased after 1 October 2010, Milhouse will have to use the 15% rate when calculating his adjustment.

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 without an extension of time

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

Multiply the amount from Step 1 by 3 then divide by 23. 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 x 3 divided by 23 = $13.04

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.

Important - GST rate change affecting time of supply

Time of supply occurs in the period in which the bad debt is written off or subsequently recovered. The rate is the one that applies to the original supply written off and subsequently recovered.

Example: Colin sells Sam goods valued at $10,000 on 2 July 2009. Sam has still not paid by 1 November 2010 and Colin decides to write off the amount as a bad debt.

Colin uses the invoice basis to account for GST and makes an adjustment on the return covering the November 2010 period.

The GST rate used is 12.5% as that was the rate of the original transaction.

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 3/23 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 3/23 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.

Adjustments for input tax at 12.5% GST rate

Late claims for expenses invoiced at GST rate of 12.5%

If you can't claim GST now (eg because you have no tax invoice) you can claim it in a future taxable period. You can only claim your GST late on expenditure incurred in the previous two years. Exceptions to this two-year rule include:

  • inability to obtain a tax invoice
  • disputed payments for expenditure
  • mistakenly treated a supply as non-taxable
  • clear mistakes or simple oversights.

Usually you can account for the late claim as a purchase or expense in the GST return in which you make the claim. However, if the original invoice included GST at 12.5% then claiming it in this manner would mean the GST component would be incorrectly calculated.

If you’re making a late claim after 1 October 2010 for an expense that includes GST at 12.5%, you’ll need to include the GST component of the expense as a credit adjustment under "other" in Box 13 of your GST adjustments calculation sheet (IR372).

Don’t include the amount of the late claim as an expense on your GST return for these late claims.

Employee reimbursements

If you reimburse an employee and claim GST input tax after 1 October, for an invoice issued at 12.5%, then this is also treated as a late claim. The claim is included as a credit adjustment in the GST return that make the reimbursement, provided you hold a valid tax invoice.

Credit and debit notes for invoices at GST rate of 12.5%

The GST rate on a credit or debit note must be the same as the rate that applied at the time of the original invoice. A credit or debit note issued for a transaction that was originally invoiced at 12.5% must have GST included at the rate of 12.5%.

If you receive a credit note or issue a debit note that includes GST at the 12.5% rate account for the GST component (the difference between the GST component on the original invoice and the actual GST charged) on the credit or debit note under "other" in box 13 of your GST adjustments calculation sheet (IR372).

Adjustments for finance leases payments

The supplier (lessor) of goods under a finance lease is able to elect for the GST rate on payments made after 1 October 2010 to remain at the rate of 12.5% provided all these conditions are met:

  • The term of the finance lease began before 1 October 2010 and ends on or after 1 October 2010.
  • The term of the finance lease is less than or equal to five years in length.
  • The lessor advised the purchaser no later than 31 October 2010 that the GST rate on payments after 1 October 2010 would remain at 12.5%.

If you make payments for a finance lease after 1 October 2010 that have GST included at 12.5% you need to account for these as an adjustment in the GST return for the period in which the payments were made.

You can calculate the GST component of the payments by dividing them by 9. Include the adjustment as an "other" adjustment in Box 13 of your GST adjustments calculation sheet (IR 372).

Note

A finance lease eligible to have payments continue at the GST rate of 12.5% must have met all these following criteria:

  • periodic payments are made during the term of the agreement, and
  • part of the amount payable under the agreement is towards credit (interest) under a credit contract, and
  • if the agreement were to end early, the final amount of GST calculated for the supply of goods would be calculated on the basis that the amount paid towards the credit (interest) had decreased with each periodic payment.

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Date published: 29 Sep 2010

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