How to win with GST in New Zealand
Like all taxes, GST can be complicated, but for most business owners it can be pretty straightforward once you get to grips with the basics. To do so, it’s necessary to understand how GST works.
Many business owners think GST costs them money, but in fact, as a GST registered entity, the typical business owner is merely acting as a paid (yes, paid!) tax collector of behalf of the IRD. This is because GST is only a cost to the final consumer, not to the GST registered business owner who can reclaim the GST he or she pays on purchases of goods and services.
For example, if I buy a jar of coffee for use at home, I cannot reclaim the GST, but if I buy coffee for my office, I can. In return for being able to reclaim the GST on purchases of goods and services, a GST registered business owner must add GST to the invoices he or she issues to his or her customers, collect it, temporarily hold the GST and then pay it to the IRD — after deducting the GST reclaimable on purchases and overheads. It’s much easier to understand if you’re in trades, services or you’re a professional because you can see the GST being added to the value of your services, unlike a retailer where prices are GST-inclusive.