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An introduction to business tax

Income Tax, Goods and Services Tax (GST), Pay As You Earn (PAYE) and Fringe Benefit Tax (FBT) may be new to you, and if so, this quick guide may help you understand these terms.

This is a general introduction to tax and does not discuss all tax types, so please seek professional advice for your own business. For more information about tax please see Inland Revenue.

01

Income Tax

As soon as you start operating as a business, it is important to keep track of the business's income tax obligations.

Once the first tax year is over (for most businesses this is 31 March), the business will need to file a tax return to declare all gross income the business received during that year.

You may also be able to deduct business expenses from the business's income, provided those expenses meet specific criteria. For more information on this please refer to Inland Revenue’s guidelines, Tools for Business.

You may have provisional tax obligations too, as income tax may be due in instalments throughout the tax year. For more information on this, please refer to Inland Revenue guidelines.

02

Goods and Services Tax (GST)

Your business doesn’t have to register for GST unless your turnover is more than $60,000 in a 12-month period. However your business can still be registered for GST, even if you expect to be under that threshold.

Please be aware there are some business activities which are GST exempt, such as renting out residential property. These businesses may not be eligible to register for GST and claim back GST on their costs.

Here are some points to consider:

  • You can claim back GST. As soon as you register, you can begin to claim back GST paid on business expenses and purchases. So if you have a lot of expenses and little income early on, it makes sense to register for GST.
  • You’ll need to complete GST returns. Once you register for GST, you’ll need to complete GST returns on a regular basis (usually every one, two or six months). It’s important to keep your GST records accurate and up to date; Inland Revenue may audit your returns at any time.
  • Talk to an accountant or tax expert for advice. You can contact Chartered Accountants Australia and New Zealand for information on finding an accountant.

When to provide GST returns

Choose 1-month, 2-month or 6-monthly returns. There are some restrictions to the timeframe you can choose, for example you can only choose 6-monthly returns if your turnover is $500,000 or less per annum. If you are registered for GST, you may opt for filing monthly returns if you think your GST costs will be higher than your income during your start-up phase as your business may be entitled to a GST refund. Alternatively, longer filing periods may make sense for you, as this can make it easier to manage any associated compliance costs. Your accountant will be able to advise the best taxable period for your business.

03

Fringe Benefit Tax (FBT)

If your business employs staff who receive non-cash benefits on top of their salary or wages, then your business may be liable for FBT. Benefits provided to staff such as gifts and vouchers, use of a company vehicle for personal use and medical insurance may all attract Fringe Benefit Tax. You can find out more about FBT on the Inland Revenue website.

04

Pay As You Earn (PAYE)

A business that employs staff is required to deduct PAYE from employees' pay and pay this to Inland Revenue. PAYE includes income tax and ACC earners' levy and your business may also need to make other deductions from employees' pay such as KiwiSaver. You can use Inland Revenue’s PAYE/KiwiSaver deductions calculator to make employee deductions.

Professional advice is a must

Tax is a complex topic and the choices you make about your business structure and funding may impact on the tax treatment of your business. Make sure you get professional advice from an accountant or qualified tax expert.

Or if you need help with your business financial packages, like Xero or MYOB, talk with an accountant or bookkeeper

05

Next steps

We hope you found this introduction to tax useful. For more information on how we can help your business, please get in touch with us. We’re happy to help.

Other helpful guides

Nothing contained on this website is to be considered tax advice. The above information is a guide only and should not be relied on as it does not take into account the financial situation of your business.

ASBAn introduction to business tax