What Is GST in New Zealand & How Does It Work?

Goods and Services Tax (GST) is a broad-based consumption tax applied to most goods and services bought and sold in New Zealand. It functions as a value-added tax, meaning it is levied at each stage of the supply chain but is ultimately borne by the final consumer. Businesses collect GST on behalf of the Inland Revenue Department (IRD), which is New Zealand’s tax authority.

Understanding Goods and Services Tax

New Zealand’s Goods and Services Tax (GST) is charged at a standard rate of 15% on the price of most goods and services. This tax applies to items sold within New Zealand, as well as most imported goods and services. A reduced rate of 9% applies to long-term hotel accommodation lasting longer than four weeks.

For example, if a product costs NZD $100 before GST, a business would add NZD $15 (15%) in GST, making the total price NZD $115. This NZD $15 is then collected from the customer. The tax is designed so that businesses pay GST only on the difference between the GST they collect on sales and the GST they pay on their business expenses. This ensures the tax burden falls on the end consumer.

They charge GST to their customers and then remit these amounts to the Inland Revenue Department (IRD). If a business has paid more GST on its purchases than it has collected on its sales, it can receive a refund from the IRD. This mechanism prevents the tax from becoming a cost to the business itself, provided it is GST-registered.

GST Registration for Businesses

Businesses in New Zealand must register for GST if their total taxable supplies exceed NZD $60,000 within any 12-month period, or if they expect to exceed this threshold in the coming 12 months. Failure to register when required can lead to penalties from the Inland Revenue Department.

Businesses with taxable supplies below the NZD $60,000 threshold can still choose to register for GST voluntarily. Voluntary registration allows businesses to claim back GST paid on expenses. This can be particularly advantageous for new businesses with significant startup costs or those that regularly incur more GST on purchases than they collect on sales.

Upon registration, businesses can charge 15% GST on sales and claim GST on purchases for their operations. This involves updating pricing, issuing tax invoices that clearly show the GST amount, and managing GST compliance.

Managing GST as a Registered Business

Once a business is GST-registered, it must manage both the GST it charges on its sales, known as “output tax,” and the GST it pays on its business expenses, referred to as “input tax.” Output tax represents the GST collected from customers, while input tax is the GST paid to suppliers for goods and services used in the business. Businesses calculate their net GST position for a given period by subtracting their total input tax from their total output tax. If output tax exceeds input tax, the difference is paid to the Inland Revenue Department (IRD); conversely, if input tax is greater, the business receives a refund.

GST returns must be filed regularly with the IRD, with common filing frequencies are monthly, two-monthly, or six-monthly. The chosen frequency often depends on a business’s annual turnover; for instance, businesses with annual sales over NZD $24 million must file monthly, while those under NZD $500,000 can opt for six-monthly filing. Most businesses typically file every two months. Returns are generally due by the 28th of the month following the end of the taxable period.

Businesses also choose an accounting basis for GST, to dictate when they account for GST on sales and purchases. The “invoice basis” requires accounting for GST when an invoice is issued or received, regardless of whether payment has been made. The “payments basis” (or cash basis) allows businesses to account for GST only when payments are actually made or received, which can be beneficial for cash flow. A “hybrid method” combines aspects of both. Businesses with annual turnover exceeding NZD $2 million must use the invoice basis, while smaller businesses may choose the payments basis.

Exempt and Zero-Rated Supplies

New Zealand’s GST system includes zero-rated and exempt supplies, which are treated differently. Zero-rated supplies are those where GST is charged at 0%. While no GST is collected from the customer, businesses making zero-rated supplies can still claim input tax credits on expenses related to those supplies. Examples include most exports of goods and services. Also included are the sale of a business as a going concern, provided both buyer and seller are GST-registered, and certain land transactions between GST-registered parties.

In contrast, exempt supplies are entirely outside the scope of GST, meaning no GST is charged on them, and businesses cannot claim input tax credits for expenses incurred in making these supplies. For example, residential rental income is typically exempt, which means landlords cannot claim GST on associated expenses like maintenance or insurance. Other common exempt supplies include most financial services, such as interest income, bank fees, and the issuing of securities. The supply of donated goods by non-profit bodies is also generally exempt. Understanding the distinction between zero-rated and exempt supplies is important for accurate GST reporting and managing a business’s tax obligations.