25th February, 2022
Nobody likes paying more than they need to, and understanding how to control your GST payable as a business owner can save you money over the course of the financial year.
Tax time is looming and many business operators are looking more closely at their accounts and wondering how to minimise, or streamline, the costs associated with EOFY.
I received a call last week from a prospective client who had been ringing round the local accountants.
Among other requests, this small business owner enquired if I was prepared to “fiddle” their GST returns as they said they didn’t like paying any money to the IRD.
Although obviously inadequate in these circumstances, my normal response when a client raises concerns about GST bills is to remind them of the difference between GST and Income Tax.
That is, GST does not belong to the business owner, who is merely acting as a paid collection agent on behalf of the IRD (I say paid because, in return for collecting and temporarily retaining the GST monies, the business owner is allowed to deduct the GST on their outgoings).
Despite that, there’s no need to pay the IRD more GST than necessary, so here are 10 tips for avoiding excess costs.
If you’re buying property for business or commercial purposes and the vendor is not GST registered, it is possible to reclaim the GST on the cost.
While this is a nice bonus in the short term, in the longer term it may cost you big time when you sell the property.
It’s better to claim GST on depreciating assets, such as work vehicles or plant equipment and the like.
If you’re going into business, make sure you claim all the GST on assets you introduce into the business depending on what trading entity you’ve opted for.
For many, the GST can be substantial, for example like a tradie who has spent years building up a collection of tools and plant.
Remember that you may not be able to claim all the GST on the first GST return, depending on the asset and whether it has been used privately you may have to claim the GST on the first two GST returns corresponding to your Balance Date.
Don’t forget you can claim GST on second-hand goods without a tax invoice.
All you need to do is make a note of the relevant details including the name and address of the person you bought the goods from.
The IRD recently confirmed that, if you operate as a sole trader and claim GST on use of home expenses, you will need to pay the GST (just on the proportion of your home used for business) upon the sale of the property.
If you’re not aware of this additional GST charge, it could creep up on you come EOFY.
If you claim the mileage allowance per kilometre, you cannot claim GST on the allowance.
Depending on your situation, you may be better off claiming the actual business proportion of vehicle expenses.
If you use your property for Airbnb or similar, be very careful not to operate your business as a sole trader or use an entity that also owns the property, otherwise you may end up paying GST on the sale of the property, which can be a very expensive mistake.
Register too late and you may end up paying the GST you should have collected from customers, along with unpleasant interest and penalties.
Register too soon and it could cost you thousands of dollars unnecessarily should your customers not be registered for GST.
Getting the timing right isn’t a straightforward proposition and it’s highly dependent on your business model, so for new business owners this is something for which you should absolutely seek the guidance of a qualified accountant.
When it comes to wind down a business or retire, you will need to also consider the timing of deregistering for GST.
The date of your deregistration is important if you have assets on hand, which you intend to take over for personal use.
You may choose to trade as a sole trader, a partnership, a limited company, use the family trust (or trusts), or via a joint venture arrangement.
But, even if your business affairs are relatively straightforward, this can make a big difference to your overall GST liability.
If you are a landlord or a property developer as well as being in business, getting the overall structure set up properly could save tens of thousands of dollars (as per tips one and six).
Another situation where there is significant GST at stake is when you are buying or selling property.
It’s easy to get this wrong and mistakes with GST where property is involved can be very expensive indeed.
Often, property transactions are not straightforward and the lawyers aren’t necessarily going to hold the expertise required to get it right (nor should they be expected to be).
In simple scenarios, GST is straightforward, but otherwise it can become complex, so don’t make assumptions or cut corners, take the time to do some research and take some advice from an experienced professional accountant.
On top of good advice, you’ll also want to maintain accurate records as easily as possible, and online accounting software can help you automate these processes so you’re not working late to get it done.
Done right, you will get your money back in GST saved while freeing yourself up to focus on the work that really matters to you.
Don’t ghost your taxes this EOFY. MYOB accounting software for small and medium businesses makes staying on top of GST easy. Try it FREE for 30 days.
The information provided in this article is general in nature and only applies in New Zealand. MYOB recommends engaging a qualified tax professional for advice specific to your situation. Find an advisor here.