Running a business comes with many financial responsibilities, and one of the most crucial aspects is understanding your obligations with the IRD. If your business turnover reaches or exceeds $60,000 in a 12-month period, you are required by law to register for GST.
But what exactly does this mean, and why is it important for you as a business owner? In this article, we’ll explore the key points about GST registration and how it impacts your business.
What Is GST?
GST (Goods and Services Tax) is a 15% tax that businesses in New Zealand must charge on most goods and services they provide. When your business becomes GST-registered, you’ll need to add this tax to your invoices, collect it from your customers, and pass it on to the IRD. In return, you can claim back the GST paid on business-related purchases, which can be a benefit for many businesses.
When Do You Need to Register for GST?
You must register for GST if your business turnover (total income) is $60,000 or more in any 12-month period, or if you expect to exceed this threshold in the next 12 months. It’s important to monitor your income regularly because you’ll need to register promptly once you hit this limit. If you don’t register on time, you could face penalties from the IRD, so staying on top of your financials is crucial.
Benefits of GST Registration
Though GST registration adds a layer of administration, it also offers several advantages:
- Claim GST on Purchases – Once registered, you can claim back the GST you pay on business-related expenses. This includes purchases like office supplies, equipment, and even rent or utilities for your business premises.
- Professional Image – Being GST-registered can make your business appear more established and credible, especially when dealing with other businesses or clients.
- Tax Compliance – Properly managing your GST obligations means you won’t face fines or penalties for non-compliance, and you’ll avoid the risk of surprise backdated taxes.
What Happens If You Don’t Register?
Failing to register for GST once you meet the $60,000 threshold can result in penalties from Inland Revenue, which can include:
- Backdated GST on all your taxable sales from the point you should have registered.
- Late payment penalties and interest charges.
- Further penalties for non-compliance if the registration delay is prolonged.
To avoid these issues, it’s essential to register as soon as your turnover approaches $60,000, or when you expect it to exceed that amount within 12 months.
Voluntary GST Registration
If your turnover is under $60,000, you can still opt to register for GST voluntarily. This might be beneficial if your business regularly deals with other GST-registered entities or if you have significant business expenses for which you’d like to claim back GST.
However, if you choose to register voluntarily, remember that you will need to comply with all the GST rules, such as charging GST on your sales and filing returns.
Conclusion
GST registration is a crucial part of running a business in New Zealand, and it’s important to understand when to register. If your business income is approaching or exceeds $60,000 in any 12-month period, you must take the necessary steps to become GST-registered. Not only will this ensure compliance with the law, but it can also offer benefits such as reclaiming GST on your purchases.
If you’re unsure about when to register or need assistance with GST compliance, Odyssey Accountants is here to help. Our experienced team can guide you through the registration process, assist with filing returns, and help you stay on top of your business taxes.