💰 GST Registration and Returns

When GST Registration Required

GST (Goods and Services Tax) is 15% tax on most goods and services in New Zealand. Contractors must register if turnover exceeds $60,000 annually.

Registration Thresholds:

How GST Works for Contractors

GST Collection and Payment:

Invoicing With GST:

GST registered: Invoice must show GST separately. If you charge $100/hour, invoice shows $100 + $15 GST = $115 total. You keep $100, pay $15 to IRD (minus GST paid on expenses).

Not GST registered: Invoice for $100/hour, client pays $100, you keep all $100. Cannot charge GST, cannot claim GST back on expenses.

Claiming GST on Business Expenses

If GST registered, can claim back GST paid on legitimate business expenses.

Examples of Claimable GST:

• Computer and equipment purchases
• Software subscriptions
• Office supplies
• Business-use portion of phone/internet
• Professional development courses
• Workspace costs (if home office, portion only)

💸 ACC, Expenses, and Record Keeping

Self-Employed ACC Levies

As contractor, you pay ACC levies directly to ACC based on your income (not employer paying).

How Self-Employed ACC Works:

Budgeting for ACC:

ACC levies typically 1-2% of income but varies by industry. Factor into set-aside calculation. Pays for accident cover that employees get automatically from employer.

Deductible Business Expenses

Can claim legitimate business expenses to reduce taxable income. Expense must be incurred to earn income and have records to prove it.

Common Contractor Expenses:

What You Cannot Claim:

• Personal expenses unrelated to business
• Clothing (unless specialized uniform/safety gear)
• Entertainment of clients (very limited exceptions)
• Fines or penalties
• Personal portion of mixed-use assets (home, vehicle, phone)

Record Keeping Requirements

Must Keep for Seven Years:

• Income records: All invoices issued, payments received
• Expense records: Receipts, invoices for business expenses
• GST records: If registered, all GST on income and expenses
• Bank statements: Business transactions
• Vehicle logbook: If claiming vehicle expenses
• Tax returns: Filed returns and supporting documentation

Why Records Matter:

IRD can audit up to seven years back. Without records, cannot prove expenses claimed are legitimate. Burden of proof on you to justify deductions. Good records = easier tax return preparation, defendable if audited, accurate financial picture.

💡 Practical Contractor Tax Management

Setting Aside Money for Tax

Biggest cashflow mistake contractors make: spending gross income without setting aside portion for tax and ACC.

Recommended Set-Aside Percentages:

The System:

Working With Accountant

Benefits of Using Accountant:

• Ensures tax returns filed correctly and on time
• Maximizes legitimate deductions you might miss
• Handles GST returns if registered
• Advises on optimal business structure
• Manages provisional tax calculations and payments
• Provides tax agent extended payment dates (terminal tax due Feb not May)
• Represents you if IRD queries or audits

Cost vs Benefit:

Accountant fees are tax-deductible business expense. Typical cost: few hundred to few thousand annually depending on complexity. Often pays for itself through: time saved, stress reduced, deductions found, errors avoided, penalties prevented.

Invoicing Best Practices

Invoice Must Include:

• Your business name and contact details
• Client name and details
• Invoice number (unique, sequential)
• Invoice date
• Description of work done
• Amount charged
• If GST registered: GST number, GST amount shown separately
• Payment terms (e.g., "Due within 20 days")
• Payment method details (bank account)

Common Contractor Tax Mistakes

Mistake 1: Not Setting Aside Tax Money

Spending all income as it arrives, then scrambling when tax bill due. Results in debt, stress, penalties. Solution: Automatic transfer to separate account on receiving each payment.

Mistake 2: Missing GST Registration Threshold

Exceeding $60k turnover without registering = penalties. IRD backdates registration, you owe GST on past income but didn't charge clients. Solution: Track turnover, register before exceeding threshold.

Mistake 3: Poor Record Keeping

Throwing away receipts, no system for tracking income/expenses. Cannot prove deductions if audited. Solution: Digital system (app or software), file everything, separate business account.

Mistake 4: Mixing Business and Personal

Using personal account for business, claiming personal expenses, unclear separation. Creates accounting nightmare and audit risk. Solution: Separate business bank account, clear boundaries on what's business vs personal.

Mistake 5: Over-Claiming Expenses

Claiming personal expenses as business, inflating business-use percentages. High audit risk, penalties if caught. Solution: Claim only legitimate business expenses, be honest about mixed-use percentages.

Final insight: Contractor tax obligations are substantial but manageable with systems and discipline. Set aside money from every payment, keep meticulous records, register for GST if required, understand provisional tax system, consider using accountant. The freedom and higher rates of contracting come with responsibility for managing tax yourself - but thousands of contractors do this successfully. Key is treating tax obligations seriously from day one, not hoping it will sort itself out.