You must register for GST (goods and services tax, charged at 15%) if you carry on a taxable activity and your turnover was at least $60,000 in the last 12 months, or you expect it to be at least $60,000 in the next 12 months. You also must register if you carry on a taxable activity and add GST to your prices. Below the threshold, registering is your choice. You register online through myIR, Inland Revenue's online service.
Starting a business or an organisation does not, by itself, oblige you to register. Inland Revenue's registering for GST page says so directly. What matters is what you do and how much it brings in.
The words you need to know
Three terms come up in every GST conversation.
- Entity: the person or body that registers. A sole trader, a partnership, a company, a society or a charity can each be an entity.
- Taxable activity: the business-like activity that GST attaches to. Inland Revenue ties the registration rule to it. A private sale of your own belongings is not part of a taxable activity.
- Turnover: the sales and income from your taxable activity over a period. It is not profit. It is what comes in before you subtract any costs.
Wages and salary from a job are not turnover from a taxable activity. If you are a company director paid through PAYE, that pay does not count towards the company's own $60,000.
What the $60,000 threshold measures
The test looks both backwards and forwards. You must register if either of these is true:
- Your turnover from a taxable activity was at least $60,000 in the last 12 months.
- You expect it to be at least $60,000 in the next 12 months.
You only need to meet one. The 12 months are a rolling period, not a tax year. You can cross the line in September, or in February, and the test applies from that point. There is no waiting for 31 March.
Business.govt.nz puts the practical rule this way: register as soon as you think you will earn more than $60,000 in 12 months. That applies whether you are a sole trader, a contractor, in partnership or a company. It also warns that you may be charged penalties if you do not register when you need to.
The $60,000 is measured before GST is added. The figure has stood since October 2009, when it was raised from $40,000, and it does not rise automatically with inflation.
What counts towards it
Standard-rated sales count. So do zero-rated sales, which are sales where GST is charged at 0%, such as most goods and services from New Zealand sold overseas. Goods or services you take from the business for private use also count. Exempt supplies, one-off sales of an asset such as a work vehicle, wages and salary, and dividends and interest do not.
If you run more than one business
The threshold applies to you, not to each business. A sole trader with two trading names adds the turnover from both together. A company you own is a separate entity with its own IRD number, so it is tested separately from you personally.
A worked example
Say Sam starts a small design studio as a sole trader in January. Sam is a sole trader, so the studio's turnover is Sam's turnover.
- Sam signs three clients on retainers at the outset. Together they are worth about $5,000 a month.
- At the end of month one, past turnover is $5,000. That is well short of $60,000.
- But Sam can see the contracts. Over the next 12 months, $5,000 a month adds up to $60,000.
Sam has met the forward-looking test from day one. Sam does not need to wait until $60,000 has actually been earned. Under the business.govt.nz guidance, Sam should register as soon as it is clear the next 12 months will reach that figure.
Now change the facts. Say one retainer client is shaky, and Sam honestly expects only $4,000 a month, or $48,000 a year. Sam is under the threshold and can choose whether to register. If the work picks up, Sam checks again. This is why it pays to look at the figures every few months and write down what you based your expectation on.
Voluntary registration below $60,000
If you do not expect to reach $60,000, it is up to you whether to register. Business.govt.nz notes that if you register and do not end up earning that much, you may be able to claim a GST refund.
The core trade-off is simple. Once registered, you charge GST on your sales and you can claim back the GST you pay on business costs. You also take on regular returns and record-keeping.
Registering can suit you if:
- You have large business costs that include GST, such as equipment, materials or stock, and you want that GST back. Business.govt.nz gives the case of a new builder who registers straight away because of big expenses, even though it is unclear whether the first year will pass $60,000.
- Most of your customers are GST-registered businesses. They can claim back the GST you charge them, so it costs them little.
- You sell mainly overseas. Zero-rated sales mean you charge no GST but can still claim GST on related costs.
- You expect to pass the threshold soon anyway.
Registering may not suit you if:
- Most of your customers are private individuals who cannot claim GST back. Your 15% is a real price rise to them.
- You have few costs that include GST, so there is little to claim back.
- You want to keep the paperwork light. Registered businesses must file returns and keep GST records.
Business.govt.nz lists registering before reaching $60,000 among the common mistakes, and says to weigh up the advantages and disadvantages first. If you are unsure, talk to your accountant before you register.
When you must register because you charge GST
There is a second route to compulsory registration, and it catches people out. If you carry on a taxable activity and you add GST to the price of what you sell, you must register. That is true even when your turnover is well under $60,000.
So you cannot simply add 15% to an invoice as a convenience. Charging GST and not being registered is the problem Inland Revenue's page deals with when it talks about backdating.
How to register with Inland Revenue
Business.govt.nz says to register online through myIR. Have these ready:
- Your IRD number. If you are registering a company, partnership or trading trust, use that entity's IRD number. A sole trader normally uses their personal one.
- Your business industry classification (BIC) code. This is a code that describes what your business does. The myIR form has a tool to find it. The code is also used to work out ACC levies, so choose the closest match with care.
- The bank account number where GST refunds should be paid.
- Your turnover for the previous 12 months and your expected turnover for the next 12 months.
- Your choice of taxable period and accounting basis (explained below).
The steps in myIR
- Log in to myIR with your user ID and password, or through RealMe. If you do not have an account, create one first.
- Choose "I want to", then "more", then "register for new tax accounts".
- Select the IRD number of the person or organisation you are registering.
- Select goods and services tax (GST).
- Check your address, contact and bank details.
- Enter your BIC code.
- Confirm that you are carrying on a taxable activity.
- Answer the questions about your turnover and enter the date you want GST to start. For most people that is the day they register.
- Choose your filing frequency and accounting basis.
- Say briefly why you are registering and what your business does.
- Review the summary and submit.
Registration can take a few working days to take effect. Do not start adding GST to your invoices until you are confirmed as registered.
If you would rather not do this yourself, an accountant, bookkeeper or other adviser can often manage the registration on your behalf.
Choices you make at registration
You make two decisions when you register. Both shape how much admin you have.
Your taxable period (how often you file)
The taxable period is how often you file a GST return. The options are monthly, two-monthly or six-monthly. Business.govt.nz says most small businesses choose two-monthly or six-monthly.
- Two-monthly means more paperwork, but it can be easier to keep track of.
- Six-monthly is available only if your turnover is under $500,000, though some exceptions apply. It can suit you if you have few expenses or invoices.
Your accounting basis (when you count a sale or cost)
The accounting basis decides the period in which you account for GST on a sale or purchase.
| Basis | You account for GST when... |
|---|---|
| Payments basis | You make or receive the payment. This is the most common choice for small businesses. |
| Invoice basis | You send or receive the invoice, even if no payment has been made. |
| Hybrid | A combination of the payments and invoice methods. |
Business.govt.nz lists choosing the wrong accounting basis as a common mistake, so think it through before you submit, and ask your accountant if you are not sure.
After you are registered
Once registered you must:
- Charge GST to your customers.
- File GST returns.
- Pay any GST you owe to Inland Revenue.
- Keep GST records.
The arithmetic on each return is the difference between the GST you collected on sales and the GST you paid on business purchases. If you collected more, you pay the balance. If you paid more, you can get a refund.
Due dates
In most cases the return and the payment are both due on the 28th of the month after your taxable period ends. A period ending 31 May, for example, is due on 28 June. There are two exceptions:
| Taxable period ends | Return and payment due |
|---|---|
| 31 March | 7 May |
| 30 November | 15 January |
| Any other month-end | The 28th of the following month |
If the due date falls on a weekend or public holiday, you can file and pay on the next working day without penalty. Check your filing frequency in myIR to confirm your own dates.
Records
Keep your invoices and expense receipts for seven years. Put aside the GST you collect so you can pay it at return time.
If you spot a mistake in a return, do not just send a new one. Business.govt.nz says an error under $1,000 may be corrected in your next return. For an error over $1,000, request an amendment through myIR.
What happens if you register late
If you should have registered and did not, Business.govt.nz warns that penalties may apply. The bigger practical problem is the GST itself. You are liable for GST on sales made after the date you should have registered, whether or not you charged your customers. That can be a cost the business has to absorb.
Inland Revenue says it can backdate your registration start date, but only in exceptional circumstances. It invites you to get in touch if you have been adding GST to prices without being registered, or if there is another reason your start date should be earlier. Do not assume a backdated date will be granted.
The best response to realising you are late is to act promptly rather than wait to be found. If the tax then turns out to be more than you can pay at once, our piece on business finance when you owe Inland Revenue explains what your options look like.
Charities, incorporated societies and other organisations
Inland Revenue's registration rules are written for entities, and its page says you do not have to register just because you start a business "or organisation". A charity or society is in the same position as anyone else: the question is whether it carries on a taxable activity and whether its turnover from that activity reaches $60,000.
The difficult part for a treasurer is deciding which of the organisation's money counts as turnover from a taxable activity. Donations, grants, membership subscriptions and fundraising events do not all work the same way, and the answer depends on what the organisation actually does. Check the position with Inland Revenue, or with your accountant, before you decide to register or not to. Do not assume a charity is automatically outside GST, and do not assume it is automatically inside.
Deregistering
You can ask to cancel your registration if either of these applies:
- You earn less than $60,000 a year and no longer want to charge GST.
- You close down your business.
Tell Inland Revenue the date you intend to stop charging GST. Until that date, you must keep charging GST and filing returns, even if your turnover is low.
If you close the business and do not plan to begin a new taxable activity over the next 12 months, Business.govt.nz says you must cancel your registration within 21 days.
Deregistering has a cost that surprises people. GST is usually payable on goods and services held at the time you cancel. If you keep business assets afterwards, for private use or for another business, you must make an adjustment in your final GST return. That return has to cover all taxable goods and services from the start of the taxable period up to the cancellation date. For a business with expensive equipment, work out this figure before you cancel.
Frequently Asked Questions
Do I have to register for GST as soon as I start a business?
No. Inland Revenue says you do not have to register just because you start a business or organisation. You must register if you carry on a taxable activity and your turnover was or will be at least $60,000 over 12 months, or if you add GST to your prices.
Is the $60,000 measured by tax year?
No. It is a rolling 12-month test, looking at the last 12 months and the next 12 months. You can pass it at any time of year.
Does the $60,000 include GST?
No. It is measured on turnover before GST is added.
Can I register for GST if I earn less than $60,000?
Yes. It is your choice. It is worth considering if you have large GST-bearing costs, sell mainly to GST-registered businesses or export. It is less attractive if most of your customers are private individuals.
Can I choose six-monthly returns?
Only if your turnover is under $500,000, although some exceptions apply. Otherwise your choices are monthly or two-monthly.
How do I stop charging GST?
Tell Inland Revenue the date you intend to stop. You must keep charging GST until then, and you will need to account for GST on any business assets you hold at that date.