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GST workshop - Registering

We’re here to help

Part 1

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An introduction to GST registering, and the filing options.

When you’re looking to register, or are newly registered, there’s important information you should know.

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• What is GST?
• GST registration
• Filing frequency
• Accounting basis

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We’ll cover what GST is, how it’s calculated, registering for GST, and the filing and accounting options.

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What is GST

• Goods and Services Tax charged at 15%
• Charge GST on sales and income
• Add 15% to the sale price
• Claim GST on purchases and expenses
• Multiply the GST inclusive figure by 3 then divide by 23
• You must be registered for GST to charge or claim.

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So, what is GST?

It’s a tax charged on most goods and services, and the rate is 15 percent.

So if you’re charging 100 dollars plus GST, you calculate 15 percent of 100 dollars.

This is 15 dollars, and your total charge, including the GST is 115 dollars.

If you need to work out GST on an expense, you don’t use 15 percent.

This is because we’re trying to work out 15 percent of the original cost, not 15 percent of the 115 dollars.

To do this, we take the total cost, multiply by 3, and divide by 23.

For example, if the expense is 115 dollars including GST, we take the 115 and multiply by 3.

This gives us an answer of 345.

We then divide this result by 23, and we get a GST figure of 15 dollars.

So to work out the GST for a price including GST, take the total, multiply it by 3, and divide the answer by 23.

To charge GST you must be registered.

If you’re not registered you can’t charge it.

Once you’re registered, you must always charge GST to your customers.

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GST registration

• Taxable activity
• GST number
• Compulsory registration for turnover over \$60,000
• Voluntary registration for turnover under \$60,000

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To register for GST, you must have a taxable activity.

A taxable activity is defined as the supply of goods or services on a regular, or continuous basis, in exchange for cash, credit, or barter.

If you have taxable activity, you can register for GST.

If you don’t meet this criteria, then you won’t be able to register.

Once registered, you’ll be given a GST number.

In most cases, this’ll be the same as your IRD number.

It’s compulsory for businesses to register if they’ve earned, or expect to earn, more than 60 thousand dollars in any 12 months.

That’s not just for the tax year from April to March, or a calendar year from January to December, it’s for any 12 month period.

It’s up to the business owner to monitor their turnover, and register if they meet this threshold.

60 thousand dollars turnover for the year, averages to 5 thousand dollars per month.

If your sales are consistently 5 thousand or more per month, then you must register for GST.

You can voluntarily register if your sales are under 60 thousand dollars, as long as you have a taxable activity.

If most of your customers are GST registered, then they’ll probably like it if you are.

The advantages are that if the GST on your expenses exceeds the GST on your income, you may be entitled to a refund, which will help with your cashflow.

Being registered can also make your business appear more credible, and professional, and you’ll be able to claim GST on most business expenses.

Some of the disadvantages of being registered are that you’re faced with more compliance work, and it takes time to complete your returns.

If you’re profitable, you’ll also need to budget for GST payments.

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GST options

Filing frequency

• Monthly
• Two-monthly (turnover less than 24 million)
• Six-monthly (turnover less than 500 thousand)

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When you register, you need to select your filing frequency, and your accounting basis.

Let’s look at the filing frequency first.

You can file returns on a monthly, two-monthly, or six-monthly basis, depending on your turnover.

Most businesses elect to file two-monthly returns.

This means 6 returns per year, and fewer transactions to account for in each return.

It’ll also mean smaller, more frequent GST payments.

Alternatively, smaller businesses can choose to file 2 returns per year, using the six-monthly filing frequency.

This may be a good idea if your records are well organised, and you’re good at budgeting.

Six-monthly filing means only 2 GST returns per year, and only 2 payments to make.

If you’re not good at record keeping, or budgeting, then two-monthly returns would be a better choice.

Your twelve-monthly turnover must be under 500 thousand dollars to use the six-monthly filing option.

The third option is to file monthly.

Monthly filing is compulsory for large businesses with turnover more than 24 million.

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GST options

Accounting basis

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Now we’ll look at the accounting basis.

It’s an important concept to understand, because the accounting basis helps you work out which GST return a transaction is included on.

Let’s say your filing frequency is two-monthly, February to March, and April to May.

You might have an expense with invoice in one period, and the payment being made in another.

For example, you might receive a bill for stock dated 31 March, but you don’t pay the bill until 20 April.

In this scenario, you have a GST invoice dated in the March period, with a payment date in the April May period.

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GST options

Accounting basis

• Payments (turnover less than 2 million)
• Invoice
• Hybrid
• Expenses on payments basis
• Income on invoice basis

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Under the payment basis, you account for income and expenses based on the payment date.

On the invoice basis, we look at the payment date and the invoice date.

We account for income and expenses in the return covering the earlier of these 2 dates.

For our example, if we’re on the payments basis, we include the expense in the April May return, because the payment was made in April.

If we were on the invoice basis, we’d include the expense in the March return, because the earlier date was the invoice date of 31 March.

So, on the payments basis, you include transactions in returns based on the payment date.

On the invoice basis, you look at the payment date and the invoice date, and account for the transaction based on the earlier of the 2 dates.

Be aware that if you’re on the invoice basis, and it takes your customers a while to pay you, there’s a chance you’ll be paying GST on income that you haven’t received yet.

The important criteria for payments basis, is that your turnover must be under 2 million for a twelve-month period.

If your turnover exceeds 2 million dollars, then you must use the invoice basis, or hybrid basis.

The hybrid basis is a combination of the other 2 options.

You’ll account for your expenses using the payments basis, but account for income using the invoice basis.

You can change your filing frequency or accounting basis if you meet the turnover thresholds we mentioned.

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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.

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The Government has introduced a number of ways to support business 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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Last updated: 10 Aug 2020
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