Guy Gardiner Accounting Now www.accountingnow.co.nz

With GST changes nearly upon us, it is worth reviewing whether you need to be, or should be GST-registered.
You need to be GST-registered if your business turnover is more than $60,000 a year, or if your business turnover in the next 12 months is likely to be more than $60,000.

Should you voluntarily be GST-registered?

You can voluntarily register for GST if your business income is less than $60,000 a year.

If your main customers are registered, you should consider being GST-registered, even if your turnover is less than $60,000. You will then be able to claim GST on many of your expenses, thus reducing your overheads. You will have to add GST to your sales invoices, so a $100 sale becomes a $100+GST sale, but this won't upset your customers. Provided they are also GST-registered, they will be able to claim back the GST, so the cost to them will still only be $100.

If your main customers are not registered, then you will have a competitive advantage if you are also not GST-registered. For instance, a plumber who is not registered may have a turnover of $55,000pa. They pay no GST and so keep all of the $55,000. But a plumber who is GST-registered must make sales of $63,250 in order to keep $55,000. The other $8,250 is GST and will be paid to the IRD.

Consider splitting your business activities

If your main customers are not GST-registered and you plan to engage in multiple activities that will collectively generate more than $60,000 of income, consider setting up separate companies for both activities.

For example if you are going to earn $50,000 from lawn mowing, and $50,000 from roof cleaning, consider setting up both a lawn mowing company and a roof cleaning company. Because neither company will generate more than $60,000, they will not need to be registered. You will keep the entire $100,000 of sales, saving $13,000 that otherwise would have been paid to the IRD in GST.