|Posted on 23 June, 2019 at 0:40|
Dellow - GST Tips
Tax minimisation is extremely important to us.
Please review our GST tips and take a minute to consider if you would like a GST review.
1. Registering for GST too early or too late
For a new or small and growing business, deciding when and whether to register for GST can be tricky.
If your customers are private individuals and you register too early, you might be voluntarily giving up thousands of dollars.
If, on the other hand, your customers are GST registered, you could register to get the GST back on your outgoings.
Register too late, and surprise surprise, the Inland Revenue may impose penalties and interest.
2. Claiming GST on overseas transactions and unregistered suppliers
GST can’t be claimed on services and products sourced from overseas suppliers.
Often, these types of errors are unintentional and simply overlooked.
For instance, goods or services purchased through online companies such as MailChimp, iTunes, Facebook, or Google Apps are from overseas suppliers and cannot be claimed.
To be safe, check your invoices and receipts to see if NZ GST has been charged.
Keep in mind as well that many smaller businesses and subcontractors are not registered for GST, which means it cannot be claimed.
3. Buying assets or equipment that may be used for personal purposes
When you’re purchasing assets or equipment for business use, you may claim a GST deduction, but the amount you can claim may vary depending on whether you are a company, sole trader or partnership.
Where the asset is to be used 100 percent for business purposes, it is normally fully deductible regardless of your trading structure.
However, where there is private use, such as with motor vehicles, sole traders and partnerships must make an adjustment to the GST claimed for the expected private use component.
When a company is involved, you can normally claim all the GST, but you will need to pay some GST on every future GST return to compensate the Inland Revenue for that private use.
4. Leasing and hire purchase
If you’re buying assets or equipment using asset finance, getting the GST correct often causes problems.
If you’re taking ownership of the assets or equipment (or if there’s an option to take ownership), you can claim all the GST up front (subject to any private use above).
But if you just have the right to use the assets or equipment for a limited period, the GST is claimable on each payment.
There are all sorts of leasing deals out there, so watch out because when it says it’s a lease, it may not be. Also be aware because sometimes GST only applies to part of the regular payment.
5. Introducing "second-hand/private goods" to your business
When you buy a second-hand item for business, you can generally claim the GST even if the vendor isn’t GST registered.
If you’re the vendor (for instance, if you are selling something to your company or you’re buying from a related party), there are complex rules to prevent you from gaining what Inland Revenue would consider to be an unfair advantage. Deductions are available for these good being introduced to the GST "pool" and should be pursued.
If you prepare your own GST Returns there may be some value in ensuring everything you are entitled to are being claimed.
Recently we have noted several builders, plumbers, and mechanics that appear to have very few tools on their fixed asset schedules.
Often an adjustment is required for existing assets introduced to the business on start up. This can be significant - more here
6. Home Office Expenses
To calculate your GST adjustment you need to work out the percentage of the area that is used for work against the total area of your home.
The table below explains how to calculate an adjustment for home office expenses and provides an example.
Scenario: Erana has an office set aside in her private home. The office is 10 square metres of a 100 square metre house. Therefore, the business percentage is 10%.
The total house expenses including GST for the taxable period were $1,000, including:
insurance (house) $200
Step 1 Work out the value of the business (taxable) use.
$1,000 x 10% = $100
Step 2 Multiply the amount from Step 1 by 3 then divide by 23. This is your GST adjustment. Transfer the totals to Box 13 on your GST return. 100 x 3 divided by 23 = $13.04