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GST workshop Part 4 - Adjustments More information

 

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GST workshop - Adjustments

We're here to help

Part 4

Audio

Narrator

An introduction to GST, adjustments.

When you’re registered for GST, it’s important to know when an adjustment is needed, and how it’s calculated.

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GST adjustments - overview

Adjustments are needed when there is business use of private goods/services or private use of business goods/services.

  • Assets acquired before registering for GST
  • Assets used privately and for business
  • Home office and motor vehicles

Audio

Narrator

Adjustment are needed for GST, when an expense is partly business, and partly private.

We’re going to cover 3 situations.

How to claim GST on business assets you owned before you registered for GST.

How to claim GST on assets purchased after you registered for GST, and that are also used privately.

And 2 common examples of adjustments, a home office, and motor vehicles.

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GST adjustments

Claiming GST on assets acquired before registering for GST.

To work our what you can claim, you will require:

  • Original date of purchase
  • Original purchase price
  • GST registration date
  • Percentage of business use of the asset

The GST claim is made at the end of the tax year, i.e. the 31 March GST return.

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Narrator

Firstly, we’ll discuss how to claim GST on assets used in your business that you owned before you registered for GST.

You’re able to claim a portion of the GST based on the percentage of time the asset’s been used for GST purposes.

For example, if you’ve owned an asset for 2 years in total, and it’s been used for GST purposes for 6 months, then you’ll be able to claim 25 percent of the GST.

To calculate your GST claim, you’ll need the following details.

The original date you purchased the asset, the original price you paid, the date you registered for GST, and the percentage of business use of the asset, which could be 100 percent.

The GST claims for these assets is made at the end of the tax year, not when you register for GST.

For most businesses, that means the GST adjustment is included in your 31 March GST return.

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Example – asset acquired before GST registration

Scenario details

  • Purchase date
  • Purchase price $6,900
  • GST registration date
  • Business use 60%

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Narrator

Here’s a typical example of an adjustment for a business vehicle.

The vehicle was bought back in .

We paid 6,900 dollars, and we registered for GST in , and the car has been used in the business since then.

We’ve kept a logbook which shows the car is used 60 percent of the time for business, and 40 percent of the time privately.

We’re making the GST claim in the GST return for .

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Example – asset acquired before GST registration

(months used for taxable supplies divided buy total months asset owned) multiplied by business use multiplied by GST content on cost

(6 months divided by 24 months) multiplied by 60% multiplied by ($6,900 divided by 23 multiplied by 3)

25% multiplied by 60% multiplied by $900 equals $135

The adjustment of $135 is shown as a credit adjustment in the GST return for 31 March 2020.

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Narrator

Here’s how the calculation works.

First, we need to work out the portion of time the car’s been used for GST purposes, or for taxable supplies.

As at 31 March, we’ve owned the car for 24 months, and it’s been used for GST purposes for a total of 6 months.

This means the car’s been used for taxable supplies for 25 percent of the time we’ve owned it.

Step 2 is the portion of business use.

Our logbook shows that we use the car 60 percent of the time for business.

At step 3, we calculate the GST on the originally purchased price.

To do this, we multiply the purchase price of 6,900 by 3, and then divide by 23.

The answer we get is 900 dollars.

So our calculation is 25 percent times 60 percent times 900 dollars of GST, and the answer is 135 dollars.

So, 135 is our credit adjustment for our March 2020 GST return.

If this seems a little complex, your accountant can do this calculation for you, or you can contact us for assistance.

There’s further info and examples on our website if you search, GST adjustments.

The important thing is to be aware that an adjustment needs to be made in these circumstances.

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GST adjustments

Claiming GST on assets used privately and for business.

To work out what you can claim, you will need to:

  • Estimate your intended business use
  • Claim GST based on your estimate
  • Keep records of your actual business use
  • Compare the actual use with your original estimate at the end of the tax year

The GST is claimed as a credit adjustment on your GST return.

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Narrator

Now we’ll look at how to calculate the GST claim for assets we purchase after our GST registration date.

If these assets aren’t used 100 percent for business, we can’t claim 100 percent of the GST.

First, we estimate how much business use there’ll be.

Then, work out the GST on the purchase price.

Next, multiply the GST by the estimated business use, the answer is your credit adjustment.

Claim this GST figure as a credit adjustment in your GST return.

We make this claim in the GST return that we purchased the asset.

We must also hold an invoice when we make the claim.

Note, you’ll need to keep records of the actual business use.

For a car, this would be a 3 month logbook.

If the purchase price of your asset is over 5,000 dollars, you need to review your claim at the end of the tax year.

Compare your estimate with the actual use, and if there’s a difference between the 2 figures, you may need to make a further adjustment to balance the difference.

Our website has the details regarding how often you must review your claim, and if this extra adjustment is required.

Keep in mind the associated persons rule, which may limit your GST claim, or reduce it to zero.

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GST adjustments – home office

An example showing an area of 6 square metres is being used as home office space in a 100 square metre house.

Claim a percentage of power, rates, house and contents insurance.

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Narrator

Now we’ll look at how to claim GST for a home office.

You’ll need to measure the floor space of the home, and the space that’s been used for business.

Divide the home area by the office area to calculate the home office percentage.

You then claim this percentage of the costs relating to the home, and some of these costs have GST.

In our example, the floor space for the home is 100 square metres, and we use 6 square metres for business.

This gives us a home office percentage of 6 percent.

This business owner can claim 6 percent of the power, rates, and insurances in their GST return.

Most business owners claim the GST for their home office at the end of the tax year.

This would be in a GST return ending in March, April, or May.

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GST adjustments – motor vehicle

  • Keep a vehicle logbook, and your tax invoices for:
    • Fuel
    • Insurance
    • Repairs
    • WOF
    • Registrations etc.
  • In your GST return, claim the logbook percentage of these vehicle expenses.
  • You can’t claim GST if you use the kilometre rate.

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Narrator

If you run your business as a company and your vehicle is registered in the company name, you can claim all of the costs for the vehicle and you don’t need to keep a logbook.

In all other cases you must keep a logbook for a minimum of 3 months to work out the business use percentage.

You use the result of the logbook to claim for the business share of your vehicle expenses for the next 3 years.

If your business use changes by more than 20 percent, you’ll need to start a new logbook to work out the business use.

If you don’t keep a logbook, you’re limited to claiming a maximum of 25 percent of your vehicle costs, even if the use is more than 25 percent.

You can claim the GST on expenses such as tires, fuel, road user charges, insurance, etcetera.

If you claim a mileage rate for vehicle costs for income tax, you can’t claim any GST on the mileage rate.

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GST adjustments

  • Errors in previous returns
  • Services taken for private use or trading stock

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Narrator

The final adjustments we’ll mention are when fixing errors from previous returns, or taking business stock for your personal use.

You may occasionally pick up mistakes you’ve made in past GST returns.

You might’ve missed a payment a customer made to you, or forgotten to claim a business expense.

If the error is less than 1,000 dollars of GST, you can include the difference in your next GST return.

If you owe more GST, then include the GST owed as a debit adjustment.

If you’re claiming for a missed expense, then include the GST amount as a credit adjustment.

If the error is over 1,000 dollars of GST, you’ll need to write into us to have the mistake fixed.

We’ll need to know what the error was, which return to adjust, and by how much.

The last adjustment we’ll cover is if you take business stock for personal use.

In these situations you’ll need to pay back some of the GST you originally claimed.

For example, if a builder buys a load of timber for a job and then takes some home to build a deck, they’ll need to pay back the GST on the timber.

They claim the GST on all of the timber purchased as a business expense, and work out the amount of GST on the timber used for their deck.

The GST for the timber used privately is added as a debit adjustment in their GST return.

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Tax relief - COVID-19 Coronavirus

  • If you've been affected by the downturn in business due to COVID-19 coronavirus, we have a range of ways to help.
  • Talk to your tax agent, visit ird.govt.nz/covid19, or phone 0800 473 566 for more information.

Go to ird.govt.nz/covid19 for more information.

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Narrator

The Government has introduced a number of ways to support businesses that have been impacted by COVID-19.

This includes options with respect to tax relief.

For the latest updates please go to our website and view the COVID-19 page.

You can also contact your tax agent, or ring our contact centre to discuss your specific situation.

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