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GST (Goods and services tax) Te tāke hokohoko

Other GST adjustments

Find out about other GST adjustments you may have to make.

Adjustments on sales and income

This section describes how to calculate adjustments that are added in with GST on sales and income. These adjustments include barters, bad debts recovered, entertainment expenses, exported secondhand goods and insurance payments received.

Barters

Sometimes, goods and services are exchanged for other goods or services, or a combination of goods, services and money. This is called barter.

If the exchange is for other goods and services, you must account for 3/23 of the open (current) market value of whatever you received in return for your supply.

When part of the exchange is in money, you must include:

  • 3/23 of the open (current) market value of the goods and services you received as an adjustment in Box 9 of your GST return, and
  • the money received in Box 5 of your GST return.

This rule applies regardless of your accounting basis.

Sometimes, when you receive goods and services in full (or part-exchange) for your supplies, you and the other person work out a dollar value for the exchange. A common example would be trade-ins. In this case, you must include this agreed value, plus any money involved, in Box 5 of your GST return.

Bad debts recovered

If you have had a GST deduction for a bad debt written off, and you later recover all or part of the debt, you must make an adjustment for the amount recovered.

Include 3/23 of the amount recovered in in Box 9 of your GST return.

Example

Michael wrote off a bad debt of $2,500, and later recovered $1,600. Michael must make an adjustment of $208.70 ($1,600 x 3 divided by 23) at the time of recovery, even if he has changed his accounting basis since writing off the amount.

Entertainment expenses

Business entertainment expenses are related to taxable income, and are incurred in the course of running a business. Private entertainment expenses, such as a restaurant lunch with friends, are non-deductible and GST cannot be claimed.

Generally, only 50% of business entertainment expenses are deductible for income tax. See our Entertainment expenses (IR268) booklet for full details. This means that there must also be a GST adjustment of 15% of the amount that is non-deductible for income tax.

During the year continue to show your total business entertainment expenses on your GST return. The GST adjustment will be made just once a year.

The table below explains exactly when to make the adjustment depending on whether a tax agent prepares your income tax return.

If you... then you make the adjustment in the GST...
don't have a tax agent return that covers the date your income tax return is due or filed, whichever is the earlier date.

 

Example
If your 2018 income tax return is due on 7 July 2018 and you don't have a tax agent, you need to make your GST adjustment in the GST return which includes that date.

have a tax agent without an extension of time return that covers the earlier of:
  • the date your income tax return is filed, or
  • 31 March after the due date for your income tax return.
have a tax agent who has an extension of time to file your income tax return period that covers the date your income tax return was actually filed.

The example below explains how to calculate the adjustment for an entertainment expense.

Example

The only entertainment expense in the 2017-18 tax year was a business lunch for clients. The lunch costs $230 including GST. The income tax return for the year ending 31 March 2018 is filed on 7 July 2018, and the business files six-monthly GST returns for the periods ending 31 March and 30 September.

The adjustment would be made in the GST return for the six months ending 30 September 2018. The whole $230 would have been included in Box 11 of an earlier GST return to claim the GST credit.

Step What to do Example
1 To work out the GST, multiply the expense by 3 then divide by 23. $230 x 3 divided by  23 = $30

 

2 Subtract GST from the entertainment expense. $230 - $30 = $200
3 Work out the amount that is not deductible for income tax (50%). $200 x 50% = $100
4
  • Multiply the non-deductible amount by 15% (or 0.15). This is your GST adjustment.
  • Show this GST adjustment on your GST adjustments calculation sheet (IR372) under "Entertainment expenses".
  • Transfer the total amounts to Box 9 on your GST return for the period ending 30 September 2018.
$100 x 15% = $15.00

 

Note

  • If an employee makes a contribution towards the expense, this is treated as a separate supply for GST purposes. Include the total expense amount in Box 11 on your GST return as usual, and show the employee contribution in Box 5.
  • Because the GST adjustment is based on the amount which is not deductible for income tax, organisations that are not liable for income tax, eg non-profit bodies and charities do not need to make this adjustment.

 

Note

For the years before 1 April 2018, the GST adjustment on entertainment expenses was calculated by multiplying the non-deductible amount by 3 and dividing by 23 (at step 4).

Exported secondhand goods

If you claim a GST input tax credit for secondhand goods you have bought and later export these goods, you must account for the GST input tax credit you've claimed. This will be 3/23 of the full purchase price of the exported secondhand goods.

Insurance payments received

If you receive an insurance payment relating to your taxable activity, you must include the GST content as an adjustment in the GST return covering the time you received the payment.

Example

An insurance company issues a cheque to cover equipment damaged in a fire. Include 3/23 of the cheque value at box 9 of your GST return.

Adjustments on purchases and expenses

This section describes how to calculate adjustments that are added in with GST on purchases and expenses. We also refer to them as credit adjustments. These adjustments include bad debts written off, home office expenses, New Zealand customs invoices and telephone expenses.

Bad debts written off

If you make and account for a supply and later write off all or part of the consideration as a bad debt, you may make a credit adjustment in the period you write it off.

The table below explains how to write off the debt depending on your accounting basis.

If you use the... then you...
invoice or hybrid basis account for a sale when you issue an invoice. If you have already included the GST on the sale in a previous return, and then later write off the debt, you will use this adjustment.
payments basis won't account for the GST on a sale until you actually receive it. If you don't receive payment and write the debt off, you cannot claim a deduction, as you haven't included the GST on the sale in any GST return.

 

Note
For hire purchase agreements and door-to-door sales, you may make an adjustment if you use the payments basis. Find out more about special supplies

Show 3/23 of the full amount you have written off on the calculation sheet, and include it in Box 13 of your GST return.You don't need to send in any documents supporting the write-off, but you do need to keep a record of the steps you took to recover the debt. This might include:

  • debtors' ledger showing the date the invoice was issued
  • letters from solicitor/debt collector trying to recover the debt, or
  • bad debts ledger showing the write-off.
Important

The debt(s) must be written off. You cannot make a claim for provision for bad debts.

 

Example - How to calculate a credit adjustment for bad debts written off using the invoice basis

Brendon, who uses the invoice basis, issues Carl with an invoice dated 26 August 2016 for electrical goods worth $115 including GST. Brendon accounts for the sale in the return for the period ending 31 August. In the following March, with no hope of receiving payment from Carl, Brendon writes off $115 as a bad debt.

Brendon shows $15 ($115 multiplied by 3 then divided by 23) on his GST adjustments calculation sheet (IR372) under "Bad debts written off" and includes it in Box 13 of his GST return for the taxable period ending 30 April 2017.

If the bad debt was for a supply when GST wasn't charged on the full price (such as the fifth week of a hotel stay, or a hire purchase sale), the GST adjustment is not simply 3/23 of the bad debt.

To calculate the amount to include in Box 13 of your return you'll need this formula:

bad debt written off divided by total consideration x GST included in consideration = GST adjustment.

 

Example - How to calculate a credit adjustment for a bad debt when GST wasn't charged on the full price

Sue has been staying at the Holiday Hotel for six weeks. The total bill was $6,005.57. Sue leaves, still owing $1,000. Later the hotel writes the $1,000 off as a bad debt. $602.57 is the GST included in the total bill. In the return covering the time of the write-off they must make an adjustment:

$1,000 divided by $6,005.57 x $602.57 = $100.33

Adjustments for home office expenses

To calculate your GST adjustment you need to work out the percentage of the area that is used for work against the total area of your home.

The example below explains how to calculate an adjustment for home office expenses.

Example

Erana has an office set aside in her private home. The office is 10 square metres of a 100 square metre house. Therefore, the business percentage is 10%. The total house expenses including GST for the taxable period were $1,000, including:

  • rates $500
  • insurance (house) $200
  • electricity $300
Step What to do Example
1 Work out the value of the business (taxable) use. $1,000 x 10% = $100
2 Multiply the amount from Step 1 by 3 then divide by 23. This is your GST adjustment.

 

  • Show this GST adjustment on your GST adjustments calculation sheet (IR372) under "Business use of private/exempt goods and services for annual or period-by-period adjustments".
  • Transfer the totals to Box 13 on your GST return.
$100 x 3 divided by 23 = $13.04

 

New Zealand Customs invoices

The New Zealand Customs Service (Customs) collects GST when:

  • goods are imported into New Zealand. Customs charges GST on the landed value (including insurance, freight and duties) for the goods.
  • Excisable goods (ie alcohol, fuel and tobacco) manufactured in New Zealand are removed from a licensed manufacturing area for home consumption. Customs collects any applicable levies and any GST on those levies.

Documents issued by Customs (such as a Customs import entry form C4, a Deferred payment of duty statement or Broker account statement) do not have to meet all the tax invoice requirements. These documents can be used to support a claim for a GST credit. Remember, you must hold these supporting documents to make a claim.

Important

Don't include imported goods under Box 11 on your GST return.

The table below explains when to account for GST paid to Customs depending on your accounting basis.

If you use... then you...
invoice basis claim the GST content shown on the Customs document in Box 13 of the GST return for the period you receive the invoice or make a payment, whichever is earlier.
payments or hybrid basis claim the GST content shown on the Customs document in Box 13 of the GST return for the period you make the GST payment.

If you would like to know more about GST on imported goods contact the New Zealand Customs Service on 0800 428 786.

Telephone expenses

The table below explains how to claim for telephone line rental.

If you ... then you...
have both a commercial and domestic line rental may claim the GST on the full cost of the commercial line. Include the commercial rental cost in Box 11 on your GST return.

 

Note
You can't claim any part of the domestic rental.

only have one telephone line rental that is used both for business and private purposes may claim GST on 50% of the cost. Show 50% of the rental in Box 11 on your GST return. This applies whether the line is commercial or domestic.
want to claim more than 50% of your rental must show that the actual business use of your telephone is greater than 50%.

 

Note
The proportion of business toll calls to private toll calls may be a factor in determining the overall business use. However, this can't be used as the sole evidence. Other factors considered are the type of business you are in and the number of people living in the house.

Note

Farmers may claim the full cost of telephone rental that is used for business and private purposes. Include the full rental in Box 11 of the GST return.

GST on business related toll calls can be claimed in full.

If you have a mobile phone that is intended for business use, you may claim GST on the total set-up cost.
If your mobile phone is also used for private use, you can claim GST on the following running costs:

  • total fixed cost of running the phone, and
  • the cost of the business calls.

Find out more

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