How to work out whether you must register for GST

Introduction

You are required to register for GST with Inland Revenue if you are carrying on a "taxable activity" and your turnover for the last 12 months was more than $40,000 or your turnover for the next 12 months will be more than $40,000. However, you may be exempted if you fit certain criteria (see "Who is required to register for GST?" below).

If you are carrying on a taxable activity but your turnover does not or will not exceed that limit, registering for GST is optional.

What is GST?

Goods and Services Tax (GST) is a tax based on the consumption of goods and services and is built into the amounts charged for these items. At present, the amount of this tax is 12.5%. People who are registered for GST must charge and collect this tax on behalf of the Government and pay it to the Inland Revenue Department.

Who is required to register for GST?

You are required to register for GST with Inland Revenue if you are carrying on a "taxable activity" (see below) and you fall within one of the following two categories:

You become liable to register if, at the end of any month, the total value of the goods and services you supplied in that month and the previous 11 months was more than $40,000.

However, you will not be liable under category 1 if you can satisfy Inland Revenue that your turnover for the 12 months that follows that period will be under $40,000.

You become liable to register if, at the start of any month, the total value of the goods and services for that month and the next 11 months is expected to be more than $40,000.

However, you will not be liable under category 2 if you can satisfy Inland Revenue that your turnover will be more than $40,000 solely because you are ceasing business, or substantially and permanently scaling down your business, or replacing any plant or capital asset.

(The threshold amount of $40,000 was increased from $30,000 as of 1 October 2000.)

What is a "taxable activity"?

A taxable activity is any activity undertaken continuously or regularly by a business, trade, manufacturer, professional, association or club. This includes any person who supplied or who intends to supply goods and services for money or some other compensation or reward, but not necessarily for a profit.

Taxable activities do not include:

working for salary or wages
being a company director
hobbies or recreational activities
private transactions such as selling one of your household items
activities involving "exempt supplies"

The most common "exempt supplies" are:

renting out residential property
interest you receive
the sale of donated goods by non-profit organisations
financial services

How do I calculate my annual turnover

To know whether you must register for GST you must calculate your annual turnover. This can be done by calculating the total value of all your sales and income, excluding GST. It also includes any subsidies or grants you may have received.

The IRD recommends that monthly turnover is a useful indicator, and that if your monthly turnover is likely to be more than $3,333 and you expect to maintain this level you should register as soon as possible.

When do I have to register?

You must apply to the IRD to register within 21 days of becoming liable to register. There are penalties for failing to meet this time limit.

Voluntary registration

If you carry on a taxable activity but are not required to register for GST, you have the option of voluntary registration. The advantages of this include the following:

You are able to claim back GST that you have paid when buying goods or services from a registered person.
You are entitled to claim GST if you have bought second-hand goods from an unregistered person and you use these goods in your taxable activity.
Filing GST returns keeps your business records current and accurate.
GST paid by an individual for a company, before the company is formed, can be claimed back by the company once it is incorporated (see How to form a company).

There are, however, some disadvantages to voluntary registration. These include the following:

You are required to account to the IRD for GST on all your taxable supplies (this includes grants and subsidies).
Filing GST returns can be time-consuming; if you need the services of an accountant or tax agent, this may become expensive.
You are not permitted to claim GST paid on expenses relating to exempt supplies (see "What is a ‘taxable activity’?" above for exempt supplies).
Once you stop your registration you are required to pay GST on any business assets that you keep for private use.

Cautionary notes

Depending on the scale of your business, it may be advisable for you to engage the services of an accountant or tax agent for the purposes of your GST returns and associated dealings with Inland Revenue.