If your business is GST registered, you must learn how to calculate and adjust GST as well as how to correctly keep your records and use GST invoices.
Learn the basics of how to meet your GST obligations with this article.
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Before you can file your GST return, you need to calculate the GST components in the prices you’ve charged your customers and the prices you’ve paid for your expenses. However, how you calculate the GST portion of a price depends entirely on whether it’s GST-exclusive or inclusive.
If you’re calculating the GST in a GST-exclusive price:
- Add 15% to the price.
If you’re calculating the GST in a GST-inclusive price:
- Multiply the price by three and divide by 23.
Why do this? Well, GST is a tax added onto a product or service price, so if a price is GST-inclusive, you don’t reverse the process and take 15% off because you’ll come up with different results.
$100 (GST excl.) + 15% (of $100) = $115
$115 (GST incl.) – 15% (of $115) = $97.75
Multiplying the price by three and then dividing it by 23 finds the correct GST portion.
$115 (GST incl.) × 3 ÷ 23 = $15 (GST portion)
The non-GST portion of the price is then $100.
It’s very common for an asset to be used outside of your business as well. Sole traders often use their vehicles at the weekends while many businesses offer fringe benefits that attract GST as well as Fringe Benefit Tax (FBT).
If a situation like this applies to your business, then you need to make a GST adjustment on your GST returns to accurately reflect the divided use of the asset. This is called apportionment.
Old or second-hand assets
If a business asset you just started to use was purchased years ago you must factor in the business and non-business use of the asset when first claiming GST. You should also have records that confirm the original cost of the asset.
If you purchase a second-hand asset to use in your business and the person you bought the asset from is not GST registered you may generally claim GST as if the price you paid was GST inclusive
In addition to the business use portion of the GST on a vehicle purchase, you can also claim back GST on the business portion of maintenance costs, including repairs and registration.
If you work from home, you can claim back GST on your rates, power bills and insurance - based on the percentage of your property that you use as an office.
Selling or disposing of an asset
If you are registered for GST and you haven’t already made a GST claim on a business item, you can do so on disposal regardless of whether it has increased or decreased in value as long as you have documents to support your claim.
Fringe benefits and entertainment expenses
While fringe benefits can be liable for GST as well as FBT, they don’t require apportionment for private use.
Find out more about Fringe benefit tax.
GST also applies to the non-income tax deductible portion of an entertainment expense.
Find out more with the Inland Revenue’s GST guide (IR375).
Like all tax records, your GST records need to be kept on file – in English (unless otherwise authorised by Inland Revenue) – for a minimum of seven years. You should keep copies of all the invoices you send out for payment and all your business expense receipts.
If you choose the payments basis for calculating your GST, the easiest way to record the GST on your income and outgoings is in a cashbook, which you balance against your bank statements first (as you would with a cheque book) before filling out a GST return.
For an example, download Inland Revenue’s Model cashbook (IR378).
If you want to make a claim on a GST expense you’ll need an invoice to support your claim, and this is the same for your GST-registered customers. If your customer is another GST-registered person, you must supply them with a tax invoice within 28 days of their request.
There are different standards for what should be included on an invoice depending on the value of the sale. Find out more with Inland Revenue.
All GST returns need to be filed on the 28th of the month following the end of the period relating to the GST return, unless the period ended in March (in which case the return is due on May 7) or in November (which is due January 15). GST payments are due on the same dates.
If you fail to file a GST return by the due date, you could receive a default assessment from Inland Revenue or be liable for a late filing penalty.
Default assessments are an estimate of your GST carried out in-house by Inland Revenue. They are almost always higher than the actual amount owed. You still have to file your late GST return, even if you pay Inland Revenue’s assessment.
You can file your GST return online through myIR secure online services. This is made available in myIR usually at the end of your taxable period.
See how filing a GST Return through myIR works at Inland Revenue’s GST Return demonstration.