What The Tax? #3: GST
GST (Goods and Services Tax) is a 15% tax added to the price of most goods and services. If you’re GST registered, you can get back the GST you pay on goods and services you purchase for your business. You’ll also have to charge GST on the goods and services you sell. You collect GST on behalf of the Government.
Who should register for GST
If your income is, or if you expect your income to be, more than $60,000 then you must register for GST. If your income is expected to be less than $60,000, you can choose to register for GST but you don’t have to. Once you’ve registered for GST, you have to complete regular GST returns.
Is GST included in your prices?
If GST is built into your prices, you must register for GST. If GST is included in your prices, you can’t cancel your GST registration even if your turnover drops under $60,000. 👍
Is GST included in your prices?
If you don’t expect to earn more than $60,000 in 12 months, you may register for GST voluntarily. Once you’ve registered for GST, you have to file regular GST returns.
I’m GST registered. What now?
If you’re GST registered, remember to include GST in your prices and issue tax invoices. In addition, you need to pay GST on your purchases and expenses, file regular GST returns, return any GST owing (or receive GST refunds) and keep good business records.
How do I calculate GST?
It’s very simple!
Let’s calculate GST for a GST-exclusive price:
- Multiply the GST-exclusive price by 15% or 0.15. Let’s say our GST-exclusive price is $1,000. $1,000 x 15% = $150 (GST amount).
Let’s calculate total GST-inclusive price:
- Simply add the GST (calculated above) to the GST-exclusive price. $1,000 + $150 = $1,150 (GST-inclusive price).
Let’s find the GST amount from a GST-inclusive price:
- Multiply the GST-inclusive price by 3 then divide by 23 (IRD recommends using this formula). $1,150 x 3 / 23 = $150 (GST amount).
If you’re GST registered, remember to include GST in your prices
GST payments and refunds
When you file your GST return, IRD calculates the difference between the amount of GST you’ve collected and the amount of GST you’ve paid. You’ll receive a refund if the amount of GST you’ve paid is larger than the GST amount you’ve collected. You’ll need to pay GST to IRD if you’ve collected more GST than you’ve paid.
How it works
If you’ve chosen to register for GST, you’ll need to make a decision about your taxable period and accounting basis.
- Taxable period (this is how often you file your GST returns):
- Monthly – a lot of paperwork.
- Two-monthly – easier to keep track of but more paperwork that for six-monthly returns.
- Six-monthly – with some exceptions, available if your turnover doesn’t exceed $500,000.
- Most sole traders choose two-monthly or six-monthly GST registration.
- Accounting basis:
- Payments (cash) – account for GST in the period when you’ve made or received a payment. Most popular option that sole traders use.
- Invoice – account for GST in the period when you’ve sent or received an invoice.
- Hybrid – combines payments and invoice methods.
Have a topic that you want to hear about? Have an interesting self-employment story to share? We’d love to hear from you!
The information provided here is of a general nature. It is not intended to be a substitute for professional advice.