GST and Provisional Tax

How to stay on top of GST and provisional tax payments during the year.

5 minute read

If you’re GST-registered and pay provisional tax, you may be paying your provisional tax at the same time your GST returns are due. Your GST return even includes a provisional tax section so you can make a combined payment for provisional tax and GST. Exceptions to this include if you file monthly or two-monthly GST returns and you haven’t selected the ratio payment option, or if you file six-monthly GST returns. You can always make voluntary provisional tax payments at any time.

Making sure you’re prepared for provisional tax payments is important, especially as new provisional tax rules came into effect in April 2017. Being aware of common GST mistakes can save you a lot of trouble down the road. Here’s what you need to know about both taxes, and how to stay on top of them during the year.

Provisional Tax

Review your cashflow

Cash is king in business, and making sure you have enough money to pay tax on the date it’s due is important. After all, if you don’t pay on time, IRD charges interest and late payment penalties. Hopefully you’ve been putting aside money each time you have received payments for the work you have done. Still, now is a good time to look at money coming in and going out.

Pay through a tax pool

If, having done all the above, meeting your provisional tax obligation is going to be a stretch consider using an IRD-approved tax pooling intermediary like Tax Management New Zealand. Tax pooling gives you the flexibility to choose how and when you pay your tax, at an interest cost that is much lower than what IRD charges and without incurring late payment penalties.

You may find this useful if your income is highly seasonal or volatile as it allows you to enjoy the protection offered to taxpayers under the standard method, but pay tax based on how your year is unfolding.

As always, don’t forget to seek the advice of your business advisers or accountant. They can work with you to come up with a strategy that ensures you’re ready to pay provisional tax.

GST: Are you making these common mistakes?

Deposits

These can be complicated, but as a general rule businesses that receive a deposit will trigger the time of supply for GST purposes, which means GST needs to be paid on the full amount of the transaction (not just the deposit). This is especially important if taxpayers are on the invoice basis, but where taxpayers are on the payment basis (which is often the case for businesses with a turnover under $2 million), only the GST on the deposit will need to be paid.

Allowances

Employers cannot claim GST on allowances paid to employees as there is insufficient connection between the payment and the expenditure. For example, if an employer gives an employee a lump sum of $1,000 per year to cover travel expenses, GST cannot be claimed on that amount. However, if the employee gets taxis and is later reimbursed by the employer, the employer can claim the GST on those taxi rides.

GST on Fringe Benefit Tax (FBT)

Providing a fringe benefit to your employees (for example, a free/subsidised gym membership) is a supply of goods and services to them, and while GST can be claimed by the employer on the cost of the membership, an output tax adjustment is also required to be calculated based on the value of the fringe benefit. The GST output tax adjustment should be included in the FBT return, not the GST return. You can use this calculator to work out your GST adjustments on fringe benefits.

28 day export rule

Many Kiwi businesses zero-rate goods that are being exported. However, to qualify for zero-rating, goods must be exported from New Zealand within 28 days of the sale (issue of invoice/receipt of payment). If goods are not exported within the 28-day timeframe, full GST must be charged.

Permission can be obtained from Inland Revenue to extend the 28-day period on a case-by-case basis.

Entertainment expenses

If you’re registered for GST, you can usually claim all the GST in relation to your business-related entertainment expenses in your GST return. However, once a year, you need to make an adjustment for any entertainment expenses that are only 50% deductible. This requires you to pay GST on the 50% non-deductible expenses you’ve previously claimed - these are deemed to be a supply under the GST rules. The GST adjustment is required to be made in the GST return for the period in which you filed your income tax return, or in the March GST return at the latest.

GST year-end adjustments

This often impacts sole-traders but can also apply to other entity types. GST can only be claimed based on the proportion that an asset is used for business purposes. For example, a car used 80% for business and 20% privately would have only 80% GST claimed on purchase. Where there has been a change in the split between business and private use, the change in use rules may become relevant. The GST year-end adjustment is often required to be made in the March GST return.

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