When Not To Register For GST

The first consideration is do you have to register? In New Zealand, the threshold is turnover or sales of $40 000, while it is $50 000 in Australia. However, that does not have to be the end of the story.

If the business is profitable, and it registers for GST, it will be likely to pay GST to the taxation authority. Being profitable is not a bad thing. Quite to the contrary. However, it does change the scenario from a loss-making business, where you might choose to register for GST in order to claim the GST refunds. This provides another source of capital for a growing, loss-making business. This was the subject of an earlier article.

Your business competes with other businesses. If your turnover or sales are close to the threshold, or not far past it, you might consider not registering for GST. In the case of being over the threshold of $40 000 for New Zealand, or $50 000 for Australia, you might consider breaking up your business into two discrete business units.

If your business is competing with larger businesses that have to pay GST, imagine the benefit to your business if you can offer a price that does not include GST? Or imagine if you charge the same price as other businesses but do not pay GST. The unpaid GST component represents increased profit.

So how do you achieve this? Although taxation laws do allow business operators to manage and organize their business affairs to suit themselves, this usually means the particular business structure or entity chosen and the management style implemented. It is not carte blanche to do anything you feel that is in your interests.

The issue being referred to here is commercial reality. If it can be shown that the only or dominant reason that a particular change in operations is made is to obtain a taxation benefit, then the change can be challenged under Anti-Tax Avoidance Measures.

So, it would be wise to think of ways that a business may be reasonably separated into discrete business units. For example, are there local and overseas customers? Can the overseas customers be serviced from another company, and therefore not have to be charged GST? They cannot claim the GST charged by another country, and the higher price to them may make them think about using your service.

If there are adult and children’s classes for martial arts classes, can they be split up into different companies, with neither company having to register for GST? If the customers are private individuals, and not businesses that can claim GST, why keep the business large and have to pay GST, whether or not you can recover the GST from the customers in your pricing?

If you have an arts and crafts school, can you separate the arts from the crafts? Are there different teachers? What is the commercial reality for the change?

If you are exporting products, they will be exempt from GST. No tax planning is required in the case of export of products. So we are talking about services that are provided in one country for the benefit of overseas customers or clients.