Most New Zealand contractors meet GST the same way: turnover creeps up, someone mentions a threshold, and a registration happens in a hurry without much thought about which options were chosen. The rules themselves are not complicated, but a few early decisions are difficult to unwind, so they are worth making deliberately.
The $60,000 threshold, and what counts toward it
You must register for GST if your taxable turnover exceeded $60,000 in the past twelve months, or if you reasonably expect it to exceed $60,000 in the next twelve months. The second limb is the one people miss. Signing a contract in July that will clearly take you past the threshold by Christmas creates an obligation now, not when the money lands.
Turnover means gross income from taxable activity, not profit. A contractor invoicing $85,000 and taking home $40,000 after materials and expenses is over the threshold. Materials you on-charge count. So does income from a second unrelated activity carried on by the same entity.
You can also register voluntarily below the threshold, which is worth considering if your customers are GST-registered businesses and you have meaningful input costs.
Filing frequency and accounting basis
Two choices are made at registration and they matter more than the registration itself.
Filing frequency is monthly, two-monthly or six-monthly, with eligibility depending on turnover. Two-monthly is the common default. Six-monthly reduces paperwork but means a larger bill arriving less often, which is harder to plan around, and it delays refunds if you are in a refund position.
Accounting basis is the more consequential choice:
- Payments basis — you account for GST when money actually moves. Available below a turnover threshold, and it protects cashflow, because you never pay GST on an invoice a customer has not settled.
- Invoice basis — you account for GST when the invoice is issued, regardless of payment. This is compulsory above the threshold, and it means funding GST on unpaid invoices out of your own pocket.
For contractors working on long payment terms, this distinction is the difference between a manageable return and a genuine cash squeeze. If you are on the invoice basis and a large customer runs at ninety days, the GST on that invoice is due before the money arrives.
Records and the rules on invoices
GST-registered businesses must hold adequate records supporting the figures in each return, and must keep them for seven years. The record-keeping rules were modernised in recent years and no longer require a document titled “tax invoice” in a prescribed form, but you still need supply information that establishes what was supplied, by whom, when, and the GST charged.
In practice, keep the supplier documentation for everything you claim. The most common problem at review is not fraud, it is a claimed expense with nothing behind it.
Where contractors most often go wrong
- Spending the GST. The GST portion of a payment was never yours. Contractors who bank it in the operating account and treat the balance as available cash reliably discover this at the worst moment. A separate account for GST and PAYE solves it permanently.
- Claiming on private use. A vehicle, phone or home office used partly privately gives an apportioned claim, not a full one. Keep the logbook.
- Claiming on exempt or zero-rated supplies incorrectly. Financial services, residential rent and some property transactions have their own treatment.
- Missing the land rules. Transactions involving land between two GST-registered parties are typically zero-rated, and getting this wrong is expensive. Take advice before signing.
- Deregistering without considering assets. On deregistration you may face an output tax adjustment on assets still held. It surprises people who thought closing down was simply a matter of stopping.
Getting it right without paying for it twice
Inland Revenue publishes its GST guidance free at ird.govt.nz, and for a straightforward contracting operation it is genuinely sufficient. Accounting software that files directly to IRD removes most of the arithmetic risk.
Where paid advice earns its keep is at the decision points: choosing your accounting basis, structuring the business, and anything involving land or a change in your circumstances. Those are the moments where a hundred-dollar conversation prevents a five-figure problem.
This article is general information, not tax advice. Your obligations depend on your own circumstances — check with Inland Revenue or your accountant.
