GST - To register or not to register - that is the question, by Stewart Russell
To answer that, the first question is; what is the business? Most business income is Goods and Services Taxable; the main exceptions are residential rental income and some specialised financial service products - such as loans, interest, currency exchange, stocks and shares.
If the annual turnover (excluding exempt income) either is, or is expected to be, greater than $60,000 per year, then you are required to register for GST.
Once registered, business owners have a choice of filing GST returns monthly, two-monthly or six-monthly. Most businesses opt for filing every two months. If annual turnover is less than $500,000 you can choose to file six-monthly. Businesses with turnover exceeding $24m are required to file GST returns monthly.
Businesses can also choose to file on an invoice basis or a payments basis. On an invoice basis, GST is paid immediately on raising an invoice and GST claimed on receipt of an invoice from a supplier. The payments basis requires businesses only pay GST once they have been paid by the customer – the business cannot claim GST until it has paid its supplier. Most businesses opt for the simpler payments basis, which also means not paying GST until the customer had paid for the goods or service. The invoice basis must be used if annual turnover is above $2m.
Now let’s assume turnover is initially going to be below $60,000. There is no obligation to register for GST, but you may want to register voluntarily.
If you are registered for GST, you can claim back GST paid on products, assets, and other expenses relating to the business. Business owners can also claim GST on the sometimes-substantial set-up expenses incurred while acquiring the initial equipment for the business.
If you decide to register for GST, to be able to claim the GST you have paid, you must charge GST on your sales or services.
The most important question is – who are your customers? If they are other GST-registered businesses, then it is more likely that you will want to be GST-registered. You can charge your price and add GST, as the business customer will claim back the GST from the IRD.
If you mainly provide goods or services to customers who aren’t GST-registered, you probably may want to avoid being GST-registered if possible.
For example, a lawn mowing contractor who mainly cuts commercial blocks or olive groves probably wants to be GST-registered, as his customers can reclaim the GST element.
Contrast this with a mainly residential lawn mowing contractor whose customers will be paying the full value of the invoice and not reclaiming GST from the IRD. That contractor will not want to make his invoice 15% higher (than his non-GST-registered competitors) by having to charge GST. Or, if he retains a competitive price, the GST-registered contractor will be less profitable as he must give 15% of his net income to IRD as GST.
If you are looking to start a business, the IRD has made some good “Introduction to Business” videos which are worth watching.