Provide GST registration details to remote vendors
From 1 October 2016 non-resident businesses must charge and return GST where they meet the criteria to register for GST and they supply remote services (including online services) to New Zealand residents. As a New Zealand resident business, you won’t be charged GST on these supplies, if:
- you are GST-registered
- the supplies are part of your taxable activity, and
- you let the non-resident supplier know you’re GST registered and provide your New Zealand GST registration number or business number
Non-resident suppliers don’t have to give you a tax invoice and you can’t claim back any incorrectly charged GST in your GST return, except where the supplier treats your business as an individual customer and charges you GST by mistake. If that happens, you contact the supplier who either refunds the amount to you or issues a tax invoice for you to claim the refund on your GST return. You can only obtain a tax invoice when the supply is less than $1,000. So it’s just easier to let the supplier know upfront.
You might like to advise your regular suppliers ahead of time and word up your purchasing team to highlight it in their calendars to start reminding suppliers at time of purchase.
Do you pay yourself from your business?
Do you take regular cash drawings from your business profits to meet personal living costs? You need to be aware of how your personal drawings sit with your tax position.
Sole traders complete an IR3 tax return at the end of the year. Include all business income and expenses in your tax return. This includes drawings. They are not a deductible business expense. It’s much easier to track if the cash drawings are taken like a regular salary or wage: weekly, fortnightly or monthly.
Record your drawings for personal use in a cash book or with accounting software. Make sure you do your forward planning so there is enough money in the business to cover the bills after you take your drawings.
Partnerships are largely in the same position as sole traders: you can take regular drawings from the business profits. These are not deductible so don’t include them as a deductible expense in the end-of-year partnership return. The split of profits to the partners at the end of the year does not take into account any drawings taken from the profits.
There is the option for a partner to be paid a salary or wage if there is a written contract of service and this might suit you and the business better. PAYE would be deducted from your salary or wage like a regular employee. You could then claim this salary or wage as a deductible expense in the partnership’s end-of-year return.
If your business entity is a company, you have more options. Shareholder-employees can:
- draw money from the company periodically throughout the year. These drawings are recorded in the shareholder current account as a loan. At the end of the tax year, the company calculates a salary amount from the company profits and credits the current account with this amount. Shareholders must pay income tax on this salary amount and it is declared on your IR3 Individual income tax return. The salary is a deductible expense for the company, while drawings are not a deductible expense for the company
- be paid a regular salary, whether monthly, fortnightly or weekly. PAYE is deducted as for a regular employee provided you have an individual employment contract with the company. The company can claim this salary as a deductible expense in its end-of-year return
- receive dividends from the company profits, after the tax on those profits has been paid
If you would like more detail on how GST would affect your business, please contact us.