Registering for GST: When is the Right Time?

Registering for GST is an essential step for businesses to comply with taxation laws. GST stands for Goods and Services Tax. It is a value-added tax levied on the supply of goods and services.

Timing is crucial when it comes to GST registration. Failing to register at the right time can have significant consequences for your business. In this article, we will explore the effects of registering for GST at the wrong time.  It will guide and help you avoid potential pitfalls.

Registering for GST Late

Delaying GST registration can lead to penalties and additional compliance obligations. If your business meets the turnover threshold, you must register within specified timeframes.

Registering for GST late may trigger an unwanted and stressful tax audit and additional scrutiny.  Furthermore, late registration may require you to account for GST on past sales.  This is likely to creating additional financial and administrative burdens.

The standard GST rate in New Zealand is 15%, meaning 15% of the price of most goods and services is collected as tax.
The standard GST rate in New Zealand is 15%, meaning 15% of the price of most goods and services is collected as tax.
Registering for GST Early

Alternatively, registering for GST too early can also impact your cash flow. Once registered, you must  GST on your sales and remit it to IRD. However, if your customers are not GST registered, they cannot claim input tax credits on their purchases from you.

Consequently, the burden of the GST payment may fall entirely on your business, reducing your profit. It’s important to assess whether your customer base is primarily composed of GST registered entities before registering early.

Ineligible Input Tax Credits

A key benefit of registering for GST is being able to claim back the GST you pay on business expenses. If you register after incurring certain expenses, you may be ineligible to claim credits on them. GST registration is generally required before making purchases that would qualify for credits. Failing to register in a timely manner may result in you losing these tax credits.  This will increase your business’ costs and erode your profit.

Strategic Timing

Aim to mitigate negative consequences of registering for GST at the wrong time.  Evaluate your business’ circumstances.  Consider factors, such as your customer base, revenue projections, and capacity to handle additional compliance. Consult a tax professional to determine the optimal time to register for GST based on your specific situation.

Businesses with annual sales exceeding NZD 60k must register for GST.
Businesses with annual sales exceeding NZD 60k must register for GST.
Regular Review

GST regulations and thresholds change over time. Stay updated with the latest information and periodically review your business’ eligibility for GST registration. Regularly assess your turnover and monitoring market trends.  It will help you identify the right time to register or deregister for GST.  It will help ensure you comply and optimise your financial position.

Remember, registering for GST at the wrong time can have financial implications for your business. Understanding the potential effects and seek expert advice when needed.  You will then make informed decisions aligned with your business goals and compliance requirements.

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