Claiming GST on business expenses can help reduce costs, but it’s important to know what you can and can’t claim. Many businesses unknowingly claim GST on ineligible expenses, which can lead to costly mistakes. Here are some common errors to avoid when filing your GST returns.
1. Purchases from Non-GST-Registered Suppliers
If you buy goods or services from a supplier who is not GST-registered, no GST has been charged, so there’s nothing to claim. Always check invoices to confirm the supplier is registered before including the GST claim.
Example: Buying office supplies from a small business that isn’t registered for GST means you cannot claim GST on that purchase.
2. Personal or Private Expenses
GST can only be claimed on expenses directly related to your business. Personal purchases or mixed-use expenses (where business and personal use are combined) may not be fully claimable.
Example: If you buy a laptop and use it for both business and personal activities, you can only claim GST on the business portion.
3. Entertainment Expenses (Partial Claims Only)
Business-related entertainment expenses, such as meals, staff events, or client entertainment, are often only partially claimable. Be mindful of this when filing your GST returns.
Example: If you take a client out for lunch, you may only be able to claim a portion of the GST on that expense.
4. Second-Hand Goods from Private Sellers
When purchasing second-hand goods from someone who is not GST-registered, there is no GST included in the price, so no GST can be claimed. However, there are specific rules for claiming credits under certain conditions.
Example: Buying a second-hand office desk from a private seller on an online marketplace does not include claimable GST.
5. Residential Rental Property Expenses
If you own a residential rental property, expenses related to it are not subject to GST. GST can only be claimed on properties used for commercial purposes.
Example: You cannot claim GST on property management fees for a residential rental, but you may be able to for a commercial lease.
6. Bank Fees, Interest, and Financial Services
Financial services, including bank fees and interest payments, do not have GST added to them, meaning they cannot be included in GST claims.
Example: Loan interest, mortgage repayments, and standard bank fees are not eligible for GST claims.
7. Salaries and Wages
Wages, salaries, and bonuses paid to employees are not subject to GST and should not be included in GST returns. These are considered employment costs rather than taxable goods or services.
Example: If you pay staff wages, GST is not applicable, so there is nothing to claim.
8. Donations to Charities or Nonprofits
Donations to registered charities and nonprofit organisations are generally not subject to GST, meaning you cannot claim GST on those contributions.
Example: A business donating to a local charity cannot claim GST on that donation, even if they receive a receipt.
9. Imported Goods and Customs GST
When importing goods, GST is often paid at the border to New Zealand Customs rather than to a GST-registered supplier. This means different rules apply when claiming it back.
Example: If you import stock for your business, you may need additional paperwork to claim the GST portion correctly.
10. Vehicles Used for Both Business and Personal Use
If a vehicle is used for both business and private purposes, GST can only be claimed on the business portion of expenses, not the full amount.
Example: If you use your car 70% for business and 30% for personal trips, you can only claim GST on the 70% business portion.
Key Takeaways:
- Always check invoices to ensure GST has been charged before claiming.
- Be cautious with entertainment, mixed-use expenses, and second-hand goods.
- Financial services, wages, and personal expenses should not be included in GST claims.
- Imported goods may require additional steps to claim GST correctly.
By understanding these common mistakes, businesses can avoid unnecessary penalties and ensure compliance with GST regulations. If you’re unsure about a claim, consulting a tax professional can help you stay on track.
The content in this blog is intended to provide general insights and should not be regarded as professional advice. Each business situation is unique, and we recommend consulting with a professional for specific guidance. At Black Arrow Business Studio, we specialise in accounting and consulting services designed to support your business’s growth and success. Feel free to contact us for expert advice and customised solutions.
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