Goods and Services Tax (GST) in New Zealand is a consumption tax currently set at a flat rate of 15%. To add GST to a price, multiply the exclusive amount by 1.15. To remove GST from a total price, divide the inclusive amount by 1.15 or multiply it by 3/23 to find the tax component.
How to Calculate GST in New Zealand
Whether you are a sole trader, a small business owner, or simply managing personal finances, understanding how to accurately calculate New Zealand’s Goods and Services Tax (GST) is essential. Since October 1, 2010, the standard GST rate in New Zealand has been 15%. While online tools can automate this process, knowing the manual formulas ensures accuracy when drafting invoices or reviewing receipts.
Formula to Add GST (Exclusive to Inclusive)
If you have a net price (excluding GST) and need to find the total price to charge a customer, you must add 15% to the base amount. This is the most common calculation used when generating invoices for taxable supplies.
The Formula:
Amount Exclusive of GST × 1.15 = Total Amount Inclusive of GST
Example:
If you are selling a service for $100 (excluding GST):
$100 × 1.15 = $115.00 (Total Price)
To find the GST component alone, you simply multiply the exclusive price by 0.15.
$100 × 0.15 = $15.00 (GST Amount)
Formula to Remove GST (Inclusive to Exclusive)
Removing GST is slightly more complex than adding it. This calculation is necessary when you have a receipt for a business expense that displays the total price, and you need to determine the pre-tax amount for your accounting records.
The Formula:
Amount Inclusive of GST ÷ 1.15 = Amount Exclusive of GST
Alternatively, to find the GST content directly from a total price, you use the fraction 3/23.
Example:
You purchase office supplies for $230 (including GST).
$230 ÷ 1.15 = $200.00 (Price excluding GST)
$230 × (3/23) = $30.00 (GST Amount)
When Must You Register for GST?
Not every business in New Zealand is required to register for GST. The Inland Revenue Department (IRD) sets specific thresholds that determine your liability. Understanding these rules is critical to avoiding penalties for non-compliance.
The $60,000 Threshold Explained
You are legally required to register for GST if your turnover (gross income from taxable activities) exceeded $60,000 in the last 12 months, or if you expect it to go over $60,000 in the next 12 months. This threshold applies to the total value of your supplies, not your profit.
If your turnover is below this threshold, registration is voluntary. Many contractors choose to register voluntarily to claim GST back on business expenses (input tax), but this also obligates them to charge GST on their services and file regular returns.
What Counts as Taxable Activity?
A taxable activity involves any continuous or regular activity carried out for the supply of goods and services to others for consideration. This includes:
- Selling goods (retail or wholesale).
- Providing services (consulting, trades, maintenance).
- Leasing commercial property.
Note that salaries and wages are not taxable activities. If you are an employee, you do not charge GST on your wages.
Guide to Filing GST Returns with Inland Revenue
Once registered, filing GST returns becomes a mandatory part of your business administration. The process involves declaring the GST you have collected on sales and the GST you have paid on expenses. The difference is either paid to the IRD or refunded to you.
Choosing Your Taxable Period
When you register, you must select a filing frequency. This determines how often you file your returns:
- Monthly: Required for businesses with a turnover typically over $24 million, but available to anyone. Good for those who want regular refunds.
- Two-monthly: The standard frequency for most small to medium businesses. It aligns well with standard billing cycles.
- Six-monthly: Available for smaller businesses with a turnover under $500,000. This reduces paperwork but requires discipline to save GST collected over a long period.
Choosing Your Accounting Basis
The accounting basis determines when you account for GST in your returns. This selection affects your cash flow and how you use a GST calculator for your records.
Invoice Basis
Under the invoice basis, you account for GST when you issue an invoice or receive a payment, whichever comes first. This is the default method. The downside is that you may have to pay GST to the IRD before your customer has actually paid you.
Payments Basis (Cash Basis)
You account for GST only when you actually receive payment from customers or make payments to suppliers. This is generally available if your turnover is under $2 million. This method is excellent for cash flow management, as you never pay GST on money you haven’t received yet.
Hybrid Basis
A less common method where you claim GST on purchases when you receive an invoice, but only account for sales when you receive payment. This can be complex to manage and is rarely used by small businesses.
Common GST Mistakes to Avoid
Even with a reliable GST calculator, errors in filing can occur. The IRD audits GST returns regularly, so accuracy is paramount.
Claiming GST on Exempt Supplies
Not everything includes GST. You cannot claim GST on:
- Bank fees and loan interest.
- Residential rent.
- Wages and salaries.
- Donations.
Attempting to claim the 15% portion on these items is a frequent error that can lead to penalties and interest charges.
Zero-Rated vs. Exempt Supplies
It is crucial to distinguish between “zero-rated” and “exempt.” Zero-rated supplies (like exported goods) are taxable at 0%. This means you don’t charge GST, but you can claim GST back on the costs associated with producing them. Exempt supplies (like financial services) involve no GST at all—you don’t charge it, and you cannot claim back GST on related expenses.
Mathematical Errors
Using the wrong formula is common. Remember, you cannot simply divide the total by 1.15 to find the GST component. You must divide by 1.15 to get the exclusive price, or multiply by 3/23 to get the GST amount. Always double-check your figures using a digital GST calculator NZ tool or the manual formulas provided above.
Record Keeping Requirements
New Zealand tax laws require you to keep records for at least seven years. This includes tax invoices for all expenses over $50. For expenses under $50, you still need a record (like a bank statement), but a full tax invoice is not strictly mandatory, though recommended. A valid tax invoice must clearly show the words “Tax Invoice,” the seller’s GST number, the date, and the GST amount.
How do I calculate GST from a total amount in NZ?
To calculate the GST component from a total (inclusive) amount, multiply the total figure by 3 and then divide the result by 23. For example, if the total is $115, the GST is $15 ($115 * 3 / 23).
What is the current GST rate in New Zealand?
The current Goods and Services Tax (GST) rate in New Zealand is 15%. This rate has been in effect since October 1, 2010.
Do I need to register for GST if I earn less than $60k?
No, registration is voluntary if your annual turnover is under $60,000. However, you may choose to register voluntarily to claim back GST on business expenses, provided you also charge GST on your sales.
Can I claim GST back on a residential property purchase?
Generally, no. The supply of residential rental accommodation is an exempt supply. However, if you buy a property as part of a taxable activity (e.g., a developer buying land to build and sell), different rules apply. Always consult a tax professional for property transactions.
What is the difference between zero-rated and exempt supplies?
Zero-rated supplies are taxable at 0%, meaning you can claim GST back on related expenses (e.g., exports). Exempt supplies are not subject to GST at all, and you cannot claim GST credits for expenses related to producing them (e.g., financial services, residential rent).
How often do I need to file GST returns?
Your filing frequency depends on the option you selected during registration: monthly, two-monthly, or six-monthly. Most small businesses file every two months. The due date is usually the 28th of the month following the end of your taxable period.
