Should I Be Registered For GST?

Subscribe

Should I Be Registered For GST?

Subscribe

Understanding if or when you or your business should become registered for GST can be difficult as there can be both a number of benefits, but also downsides associated with it. The IRD has set guidelines for businesses who need to register for GST, but these can often be difficult to understand, especially for those who are self-employed or just starting a small business. This article is designed to assist you as an individual or business with the registration process, and hopefully make it a lot easier to understand.

If you or your business have been operating for a significant period of time, then it is likely that you should be registered for GST, and if you’re not then perhaps time to start thinking about it. The IRD states that you must register for GST if you or your business carry out taxable activity, which is supplying or making a supply, as well as are turning over $60,000 NZD (gross value of good and services sold within New Zealand, excluding GST) or more in the previous 12 months, or the same amount in the following 12 months. If the prices you charge for your products or services include GST, then you are also required to register. This registration process must occur within 21 days as soon as any of the conditions stated above apply to you or your business.

So what about individuals or small businesses turning over less that $60k per year? Put simply, in most cases you shouldn’t need to worry about registering unless you expect to be turning over $60k in the next 12 months. You don’t have to register for GST just because you start a company, have an IRD number or because your business is in trading. If you or your business is turning over less that $60k per year, but you think that becoming registered for GST would be beneficial, then you can voluntarily register for GST. It is important to keep in mind though that if you do so, you will have to account for GST on all of your taxable goods or services, file regular GST returns, and comply with a number of GST requirements that can be found on the IRD’s website. Particularly important is the requirement to pay GST on the open market value of any assets that you keep for private use if you cancel your GST registration.

In the early years of a business you may have heavy capital expenditure and expenses that include GST, so serious consideration needs to be made towards registering if you plan on continuing in business, so that you will get a refund of the GST you have paid in those early years. You will then naturally be required to charge GST on your products and services. This is a good point to talk to your accountant about. But at what point should you register? Do you reach the threshold and put you prices up? Or just take 15% GST out of your business’s revenue? Neither seem very beneficial especially if you’re struggling to make ends meet or established a name for having the lowest prices in town. Take a look at the following list of benefits and downsides and decide for yourself:

Benefits

Opportunities

Flip Over For More..

Good chance to review pricing and sales volume as well as gives you a great opportunity to adopt a modern approach to accounting using software.

Growth

Flip Over For More..

Allows your business to expand to over $60,000 annual turnover and grow beyond just a small business. Great for your customers, and your back pocket!

Business Tracking

Flip Over For More..

You will get into the habit of regular accounting, allowing you to pick up on trends in business and respond to any changes.

Professional Image

Flip Over For More..

Good chance to review pricing and sales volume as well as gives you a great opportunity to adopt a modern approach to accounting using software.

Downsides

Record Keeping

Flip Over For More..

You are required to keep good records (which you should be doing anyway!), costing you time and possibly money.

GST Returns

Flip Over For More..

You will need to file GST returns on a regular basis if you want to make the most of being registered, which will cost you a bit of time.

Pricing Changes

Flip Over For More..

You will most likely need to increase the pricing of your products or services to account for the 15% GST, or take GST out of your business’s revenue.

One thing that can catch you out is that you don’t need to register for GST if your turnover exceeds $60k due to selling business assets as a result of stopping taxable activity, sustainability/reducing the scale of your activity, or replacing your plant or assets. This is a great example of why you need to take the time and effort to manage your finances correctly, so you don’t get caught out paying unnecessary GST expenses.

So what is the best decision for you to make? Well, unless you or your business is small and you plan to stay that way for some time, then the reasons to register do outweigh the downsides. Although registering will increase your compliance costs and the time spent balancing your books and managing your cashflow, you will ultimately have a better idea of the performance of your business and stay up to date with your tax obligations, allowing you to be more successful. Capital Planning’s SMART Dollars can help you with this by keeping a record of all your GST expenses and claims, making it incredibly easy to file your GST returns. SMART Dollars even comes with a free 30 day trial. Check it out here!

Disclaimer: This is general finance information and does not take into account your objectives, financial situation or needs. Before acting on any of the information or advice, you should consider the appropriateness of the information or advice in relation to your objectives, financial situation or needs and always consult with your financial advisor or accountant.

Keep In Touch

Follow Capital Planning on social media to keep updated with new product developments and interesting business guides and articles.

Facebook
Twitter
LinkedIn
Subscribe

Keep In Touch

Follow Capital Planning on social media to keep updated with new product developments and interesting business guides and articles.

Facebook
Twitter
LinkedIn
Subscribe
2017-08-07T14:17:26+00:00