Goods and Services Tax (GST) is New Zealand's broad-based consumption tax, charged at a flat rate of 15% on most goods and services. If you run a small business, GST is one of the first tax obligations you will encounter. Unlike income tax, which is based on your profit, GST is collected on your total sales (supplies) and paid to Inland Revenue after deducting the GST on your business purchases (inputs). Understanding when you need to register, how to file returns, and how to manage GST cash flow is essential for any Kiwi business owner.
When Must You Register for GST?
You must register for GST if your business turnover is, or is expected to be, more than NZ$60,000 in any 12-month period. Turnover means your total gross sales, not your profit. You can also voluntarily register even if your turnover is below NZ$60,000, which can be advantageous in some situations.
Key points about registration:
- The NZ$60,000 threshold is based on a rolling 12-month period, not the financial year
- If you reasonably expect to exceed NZ$60,000 in the next 12 months (for example, if you sign a large contract), you must register even if your historical turnover is below the threshold
- Registration is done through myIR on the Inland Revenue website
- Once registered, you must charge GST on all your taxable supplies and file regular GST returns
Our GST calculator can help you work out the GST component of your prices and invoices.
Choosing Your Filing Frequency
When you register for GST, you choose how often to file returns:
- Monthly: Required if your turnover exceeds NZ$24 million, optional for anyone else. Returns due by the 28th of the following month.
- Two-monthly (bi-monthly): The most common filing frequency for small businesses. Returns are due by the 28th of the month after the two-month period ends.
- Six-monthly: Available if your turnover is NZ$500,000 or less. Reduces the number of returns to two per year.
For most small businesses, two-monthly filing strikes the best balance between administrative effort and cash flow management. Six-monthly filing is simpler but means larger GST payments at each filing date, which requires more disciplined cash management.
Invoice Basis vs Payments Basis
You also choose between two accounting methods for GST:
- Invoice (accrual) basis: You account for GST when you issue an invoice, regardless of when you receive payment. This is the standard method and is required if your turnover exceeds NZ$2 million.
- Payments (cash) basis: You account for GST when you actually receive payment. Available if turnover is NZ$2 million or less. This is generally better for cash flow because you do not owe GST on invoices that have not been paid yet.
For most small businesses, the payments basis is preferable. It means you only need to pay GST to IRD when your customers have actually paid you, which avoids the common pain point of owing GST on outstanding invoices.
Filing Your GST Return
A GST return calculates the difference between:
- Output GST: The GST you have collected from your customers on your sales
- Input GST: The GST you have paid on your business purchases and expenses
If your output GST exceeds your input GST, you owe the difference to IRD. If your input GST exceeds your output GST (which can happen if you have made major purchases or investments), IRD will refund the difference to you.
Filing is done through myIR. If you use accounting software like Xero or MYOB, the software can generate your GST return figures directly from your accounting records, making the process much faster and less error-prone. Our GST calculator is useful for quick calculations, and our profit margin calculator can help you price your products correctly inclusive of GST.
Common GST Mistakes
- Not setting aside GST: The most common problem. The GST you collect is not your money – it belongs to IRD. Set aside 15% of your sales in a separate bank account so the money is there when the return is due.
- Claiming GST on non-business expenses: You can only claim input GST on purchases that are for business purposes. Personal expenses, entertainment (subject to limitations), and exempt supplies do not qualify.
- Missing filing deadlines: Late filing and late payment attract penalties and interest. Set calendar reminders for each filing date.
- Incorrect invoicing: Tax invoices must include specific information (GST number, date, description of supply, GST amount). Without a valid tax invoice, your customers cannot claim input GST on their purchases from you.
Voluntary Registration: Is It Worth It?
If your turnover is below NZ$60,000, you can still choose to register for GST. This can be beneficial if:
- Your business has significant input GST (for example, if you are making substantial business purchases or capital investments)
- Your customers are GST-registered businesses who want to claim input credits on their purchases from you
- You expect your turnover to exceed NZ$60,000 soon and want to get the systems in place early
The downside of voluntary registration is the compliance cost: you must file regular returns, maintain proper records, and include GST in your pricing. For very small businesses or sole traders selling mainly to consumers, the compliance burden may outweigh the benefits. Our sole trader tax calculator and break-even calculator can help you assess whether GST registration makes financial sense for your business.