Small businesses face a lot of challenges especially during their startup and early years. Most of them have to push for a product and brand which is not yet that known by the market, perhaps even in their own towns and cities. They also have to face competition from the larger businesses around them. Another challenge among small businesses is that they also have to pay taxes as a duly-registered business.
In New Zealand, one of the things that small businesses have to understand is how GST will affect their business operations, accounting statements, and tax liabilities. If you want to know more information about GST, you can check the numerous sites which are helpful in understanding GST in New Zealand. Here are some suggestions on how to save on taxes.
- How To Save On GST
GST is imposed on businesses by working out the difference between the GST on the things that they buy and the GST on the things that they sell or provide. Business startups in New Zealand have to register for the reporting, payment, and filing of GST returns if they’re dealing with goods and services that are covered by GST. When they’re a GST-registered organization, they’ll only pay the difference between the GST incurred by the goods they sell and the GST component of the goods they’ve bought.
This is done by comparing the GST they’ve paid from everything they purchased with the amount of GST they received for the goods they sold or the services they’ve rendered. This process is called accounting reconciliation. They do it at regular intervals, the usual being two months. Some companies choose to do their GST reconciliation monthly or semiannually.
The GST they paid is also called input GST while the GST they received is also called output GST. If the business paid out more GST from the goods they bought than the GST they received from the payments for their goods and services, then they can claim a GST refund from the Inland Revenue (IRD). But if they sold more and thus received a higher amount of GST than what they paid for their GST-liable purchases, then they’ll have to pay for the difference after reconciliation.
You can save on GST by making sure that you buy all your purchases, supplies, and raw materials from a business or company which is GST registered. This is important so that you can ask for sales invoices and official receipts which indicate the amount of GST that was included in what you paid to them.
You need those invoices and receipts when you have to reconcile the input GST that you paid with the output GST that you paid. Keep in mind that GST is a form of expense on your part. If the amount of input GST that you paid is higher than the GST that you received for that taxable period, then you don’t have to pay any GST for that particular taxable period. Instead, you’re entitled to claim a refund from the IRD for that specific taxable period.
- Do Business In GST-Exempt Sectors
The GST is a type of value-added tax even small businesses have to pay if they earn above a certain minimum amount. It’s a kind of tax on the consumption of goods and services. It was designed to impose taxes on as many goods and services as possible. There are only a very few exceptions to the GST.
Some of the goods and services exempted from the GST are rents collected by landlords from their residential properties. Other exemptions are financial services, donations for non-profit purposes, and the sale of precious metals. To save on GST, you might want to consider opening a small business in any of these sectors which are exempt from payment of GST. In financial services, you can open a money remittance center or insurance agency. In real estate, you can buy residential properties and earn from the rent which is exempt from GST.
- How To Save On GST If You’re An Exporter
There’s a special rule for New Zealand businesses that export goods and services to other countries. They’re entitled to claim that their export products and services are ‘zero-rate.’ This means that they effectively don’t charge any GST or charge 0%. This would allow the New Zealand-based business to claim the refund for the input GST that they paid. The buyer of the goods or services located in another country doesn’t have to pay the GST on the final sale price.
When businesses buy their supplies and input materials, the price which includes the GST doesn’t matter anymore because they can claim the refund of the input GST anyway. Wholesalers thus often quote their prices without the GST so they can go low, but they still have to collect the GST component of the final price if they’re able to sell their products. They have to report the GST they received and collected to the IRD. Businesses can opt to reconcile GST when they accrue or when they’re paid.
You can thus save on GST if you’re an exporter. In fact, you can save so much more on GST if you’re exporting your products. As an exporter, you can claim that your products are ‘zero-rated’ yet include the GST in the final price in the sales invoice sent to the buyer overseas. But you won’t have to pay the GST anymore since you indicated that your product is ‘zero-rated.’ Moreover, you can still claim a refund for all the input GST that you paid out for your supplies, inputs, and raw materials.
- How To Save On Income Taxes
As a small business, you can also save on your income taxes. You can save on income taxes by making sure that all your expenses are properly documented with invoices and receipts. Keep in mind that all your expenses are deductible from your gross income before taxes. This means that the government would only tax you for the actual amount of profit that you earn from your business operations. If you don’t earn any income during a specific taxable period, then you don’t have any taxable income. But this is unlikely if you’re making a good turnover.
What’s more likely is that you’d be able to sell your goods and services, but you’ll also be spending some of your capital on inputs, supplies, raw materials, etc. You should make sure that all your expenses are included in your accounting statements so that they can be deducted from your gross income. Aside from inputs, you also spend on other operational expenses such as utilities, salaries, and transportation expenses. Make sure that all these expenses are included in your financial statements.
There are several ways to save on taxes in New Zealand if you’re a small business. But you’ll have to be diligent in keeping the sales invoices and official receipts for everything you bought. It also helps if you keep accurate accounting records. You can also explore the opportunities of saving on GST in exporting products from New Zealand. You can reduce your income taxes by making sure all your expenses are included in your financial statements and deducted from your gross income before taxes.