GST registration in NZ – when to do it?

(GST registration NZ – 3 minute read)

At some stage all business owners in NZ will think about registering their business for GST. GST stands for Goods and Services Tax. If you need a reminder on what GST is, please read this article.

A common question I get from a lot of our clients is when to register for GST. To answer that question, we need to consider a few things. The first thing to look at is:

Is your business conducting a GST taxable activity?

The first and most important one.

Generally speaking most sales activities are GST taxable. There are a few notable exceptions:

1. PAYE wages received from an employer
2. Residential rental income
3. Interest income, bank fees etc.

Generally speaking, everything else may be construed as a GST taxable activity. Note that selling second-hand items in a garage sale doesn’t usually count as a GST taxable activity. So you don’t need to worry about accounting for selling all the old junk you have accumulated at home. Same goes for any funds raised from doing your hobbies.

That being said, if you are in the business of buying and selling second hand on a regular basis – you’re definitely conducting a GST taxable activity. Oh, and you’ll need to pay income tax on that too.

Do you meet the sales threshold for GST registration NZ?

The second one.

All revenue generating entities that are generating sales of more than $60,000 per annum (as of 2024) from GST taxable activities MUST register for GST.

If this is you, then you have no choice but to register for GST. You can’t choose not to register.

For example: Peter is a construction consultant who does contract work for a large construction company. Every year he gets paid out $200,000 per annum for his work. As this is not PAYE salary, this is considered a consulting service fee which is a GST taxable activity. This means that Peter has to be registered for GST and start collecting GST from his client (the construction company).

Please note that the threshold is measured based on sales/revenue NOT profit. So long as your sales is $60,000 and above per annum you must register for GST.

Another example: Chen runs a building company. During the financial year his company billed $500,000 worth of construction work to their clients. Costs are high and the company ended the year with $50,000 profit. Chen’s company still need to register for GST because their sales is more than $60,000 a year.

GST registration NZ – is that it?

Pretty much.

Ask yourself these two questions:

1. Are you conducting a GST taxable activity?
2. Are you making more than $60,000 sales in a year?

If you answered yes to both then you need to make your GST registration NZ. If you answered no to either of the above, you don’t have to register for GST.

But, doesn’t registering for GST mean that I can save money?

Who told you that?

Look, if you’re planning on registering for GST so that you can claim GST refunds – you’re a bit mistaken. GST payments are calculated based on the GST you collect from your clients minus the GST that you’ve paid for your business expenses.

You’ll only be getting refunds if your expenses are higher than your income. So most of the time you’ll be paying GST to the IRD that you’ve collected from your clients. If you keep getting refunds with every GST return, you’re either losing money in the business (not a good thing) or falsifying your GST returns (definitely NOT a good thing).

Also note that you can only claim GST on business related expenses. Don’t go trying to claim non-business items as GST expenses.

Some exceptions to the rule

That being said, there are some cases where a business can be consistently claiming GST refunds AND not break the law:

A business that sells mostly to overseas clients

All sales that come from overseas are not GST taxable. So you don’t pay GST on them.

For example: Gin has an exporting business, selling NZ goods to overseas clients. They also re-sell some of their goods locally. Since their local sales amounts to more than $60,000 they need to register for GST. Given that all their purchases are made locally, they can claim GST refunds on their purchases. This puts them in a position where their GST refunds always outweigh their GST claims since the bulk of their sales are made to clients overseas.

A start-up business that hasn’t made much sales

A research heavy startup can elect to voluntarily register for GST. This means that they can start claiming GST refunds early on before they make any sales. This helps to offset some of the costs from starting up a business. Note that there should be a plan in place for the company to generate sales in the near future.

GST registration NZ – when to do it?

When your business hits the $60,000 threhold. That’s it. That’s the advice I give to 99% of all my clients.

The only time I would give a different advice is if the client is working for an organisation that insists all their contractors be GST registered. In which case, you need to be GST registered to make money.

Also, being GST registered brings a lot of extra stuff to worry about, like making your GST payments on time. If you miss your payments, you have to pay interest and penalties – further adding to your cost.

So save yourself the stress of being GST registered, just wait until you hit the $60,000 mark.

In the meantime, focus on your business and as always.

Stay positive!