Building Financial Health Through Comprehensive Spending Insights

The hospitality industry in New Zealand has unique GST considerations due to the diverse nature of its operations, from food and beverage service to accommodation and events. Understanding these specific GST rules is essential for cafes, restaurants, hotels, and other hospitality businesses.

GST Basics for Hospitality Businesses

Registration Requirements

Like other businesses, hospitality operators must register for GST if their taxable supplies exceed (or are expected to exceed) NZ$60,000 in any 12-month period. For hospitality businesses, taxable supplies include:

• Food and beverage sales
• Accommodation services
• Function and event fees
• Cover charges and entry fees
• Additional services like laundry, room service, or transport

Most established hospitality businesses will exceed this threshold quickly and need to register for GST.

Charging and Displaying GST

Once registered, hospitality businesses must:

• Charge 15% GST on all taxable supplies
• Display prices inclusive of GST to consumers (as required by the Fair Trading Act)
• Clearly indicate if any displayed prices exclude GST (generally only acceptable for business-to-business marketing)

This transparency ensures customers understand the full price they will pay for goods and services.

GST on Food and Beverage Service

Restaurant and CafÔö£┬« Operations

For restaurants, cafes, and similar establishments:

• All food and beverage sales are subject to GST at 15%, regardless of whether consumed on-premises or as takeaway
• GST applies to the total bill, including any service charges
• Point-of-sale systems should be configured to correctly calculate and record GST
• Discounts and promotions affect the GST-inclusive price (the GST component is reduced proportionally with any discount)

GST on Different Food Categories

Unlike some countries, New Zealand does not have different GST rates for different types of food:

• Both essential food items and luxury foods attract the same 15% GST
• Alcoholic beverages are subject to the standard 15% GST (in addition to any excise duties)
• Takeaway and dine-in food are treated the same for GST purposes

This consistent approach simplifies compliance but means hospitality businesses cannot reduce prices through differential GST rates.

Staff Meals and Benefits

When providing meals to staff:

• Free or discounted meals provided to staff may be subject to fringe benefit tax rather than GST
• If staff pay for meals, GST is charged as with any other sale
• Staff discounts reduce the GST-inclusive price, with GST calculated on the discounted amount

GST on Accommodation Services

Short-Term Accommodation

For hotels, motels, and other commercial accommodation providers:

• Accommodation services are subject to GST at 15%
• This applies to all charges associated with the stay, including room rates, additional services, and no-show fees
• Deposits and advance payments trigger GST obligations when received, not when the guest stays
• Cancellation fees are generally subject to GST as they relate to the accommodation service

Long-Term Accommodation

For stays exceeding 28 days:

• GST is still applicable, but there are special rules for commercial dwelling accommodation
• After 28 days of continuous stay, GST only applies to 60% of the charge
• This effectively reduces the GST rate from 15% to 9% for long-term stays
• This rule recognizes the residential nature of long-term accommodation

Hospitality providers need systems to track stay duration and apply the reduced GST rate when appropriate.

Package Deals and Bundled Services

When offering packages that combine accommodation with other services:

• GST applies to the total package price
• Different components (room, meals, activities) don't need separate GST calculations
• If the package includes long-term accommodation, apportionment may be needed
• If some elements would normally be zero-rated (like an included tour outside New Zealand), special rules may apply

Events, Functions, and Conferences

Venue Hire and Event Services

For businesses hosting events, conferences, or functions:

• Venue hire fees are subject to GST at 15%
• Catering services provided for events attract GST
• Equipment rental, audiovisual services, and other add-ons are all subject to GST
• Deposits and cancellation fees generally attract GST

Deposits and Cancellations

When dealing with event bookings:

• Deposits trigger a GST obligation when received, not when the event occurs
• Cancellation fees are generally subject to GST as they relate to the original taxable supply
• Non-refundable deposits retained after cancellation remain subject to GST
• This timing difference can create cash flow considerations for businesses

Business Clients and Tax Invoices

When providing services to business clients:

• Valid tax invoices must be provided for supplies over $50
• These must include all required elements including GST registration number and tax invoice designation
• For ongoing events or functions, invoicing may be aligned with progress payments
• Clear descriptions help clients claim their own input tax credits

Special GST Situations in Hospitality

Tips and Service Charges

The GST treatment of gratuities depends on how they're handled:

• Mandatory service charges added to bills are subject to GST
• Discretionary tips given directly to staff and not processed through the business system are generally not subject to GST
• Tips pooled and distributed through the payroll system may have GST implications depending on the arrangement

Clear policies on how tips are handled help ensure correct GST treatment.

No-Shows and Cancellations

For reservations that aren't honored:

• Cancellation fees and retained deposits are generally subject to GST
• No-show charges are typically treated as compensation for the original taxable supply and attract GST
• The time of supply for GST purposes is usually when the cancellation fee is invoiced or payment received

Gift Vouchers and Loyalty Programs

When offering gift vouchers or loyalty rewards:

• GST is not usually payable when gift vouchers are sold, but rather when they are redeemed
• Loyalty points or rewards are generally only subject to GST when redeemed
• If vouchers expire without being used, special GST rules may apply
• The GST treatment of complimentary stays or meals depends on whether they're provided for business or promotional purposes

Claiming GST on Business Expenses

Common Hospitality Expenses

Hospitality businesses can claim GST on a wide range of business expenses:

• Food and beverage inventory
• Kitchen equipment and restaurant furnishings
• Linen, tableware, and consumables
• Cleaning and maintenance services
• Utilities and rent
• Marketing and advertising
• Professional services like accounting and legal advice

To claim GST, businesses need valid tax invoices for purchases over $50.

Entertainment Expenses

For hospitality businesses, entertainment expenses require special consideration:

• GST on business entertainment is generally claimable, but the income tax treatment may differ
• Staff parties and functions may have specific GST and FBT implications
• Complimentary meals or accommodation for business purposes may be fully GST-deductible
• Record-keeping should distinguish between business and private entertainment

Mixed-Use Assets

For assets used for both business and private purposes:

• GST can only be claimed on the business-use portion
• Common examples include vehicles, mobile phones, and in some cases, parts of the premises
• Businesses must maintain records to support the business-use percentage claimed
• Adjustments may be required if usage patterns change over time

GST Compliance and Record Keeping

Point-of-Sale Systems

Effective POS systems are crucial for GST compliance in hospitality:

• Systems should automatically calculate and record GST on all sales
• Reports should clearly separate GST components for easy return preparation
• Integration with accounting software streamlines GST compliance
• The system should handle special situations like staff meals, discounts, and voucher redemptions

Record Keeping Requirements

Hospitality businesses should maintain detailed GST records, including:

• All sales records, including POS records, invoices, and receipt copies
• Purchase invoices for stock and expenses
• Bank statements showing GST-inclusive transactions
• Documentation of special situations like long-term accommodation
• Records of adjustments, such as for mixed-use assets

These records must be kept for at least 7 years from the end of the tax year to which they relate.

GST Return Filing

When preparing GST returns:

• Ensure all sales, including those processed through the POS system, are captured
• Account for timing differences with deposits and advance payments
• Include all eligible input tax claims
• Consider whether any adjustments are needed for mixed-use assets or special situations
• File and pay by the due date to avoid penalties and interest

GST for Specific Hospitality Sectors

Cafes and Restaurants

For food service establishments:

• All food and beverage sales attract GST, whether dine-in or takeaway
• Systems should be set up to handle GST on split bills, discounts, and promotions
• Staff meal policies should address GST and FBT implications
• Online ordering and delivery platforms may have specific GST considerations

Hotels and Accommodation

For accommodation providers:

• Room rates, additional services, and cancellation fees all attract GST
• Systems should identify and apply the reduced GST rate for stays exceeding 28 days
• Integration between property management and accounting systems helps track GST accurately
• Corporate rates and volume discounts affect the GST-inclusive price

Bars and Nightclubs

For establishments serving alcohol:

• All sales of alcoholic and non-alcoholic beverages are subject to GST
• Cover charges and entry fees also attract GST
• Cash handling procedures should ensure all sales are recorded for GST purposes
• Special promotions like happy hours or two-for-one deals still attract GST on the discounted amount

Catering and Event Services

For catering businesses:

• All catering services and food supplies attract GST
• Deposits and progress payments trigger GST obligations when received
• Equipment hire associated with catering is subject to GST
• Clear invoicing helps clients claim input tax credits where applicable

Common GST Challenges for Hospitality Businesses

Cash Transactions

Managing GST compliance with cash sales:

• All cash sales must be recorded and included in GST returns
• POS systems should record all transactions, including cash sales
• Cash handling procedures should ensure nothing bypasses the GST system
• Regular reconciliation of cash helps ensure GST compliance

Seasonal Fluctuations

Dealing with business seasonality:

• GST payments may be higher during peak seasons
• Cash flow planning should account for these fluctuations
• The choice of filing frequency (monthly, two-monthly, or six-monthly) can help manage cash flow
• Consider the accounting basis that best suits your business's cash flow patterns

Staff Training and Compliance

Ensuring staff understand GST requirements:

• Train staff on the importance of recording all sales through the system
• Ensure team members understand GST implications of discounts, complimentary items, and staff meals
• Develop clear procedures for handling vouchers, deposits, and cancellations
• Regular refresher training helps maintain GST compliance

GST Compliance Strategies for Hospitality

Accounting Software

Effective software solutions can streamline GST compliance:

• Use hospitality-specific accounting software that understands industry nuances
• Popular options in New Zealand include Xero, Moniaro Books, MYOB, and QuickBooks
• Look for software that integrates with your POS and property management systems
• Automated GST calculations and reports reduce the risk of errors

Regular GST Reconciliation

Periodic checks help ensure accuracy:

• Reconcile sales records with GST returns
• Check that all purchases with GST have been claimed
• Review special situations like long-term accommodation for correct GST treatment
• Address any discrepancies promptly to avoid compounding errors

Professional Assistance

Given the complexity of hospitality GST:

• Consider engaging an accountant familiar with hospitality businesses
• Professional advice is particularly valuable when setting up systems or dealing with unusual situations
• Periodic reviews by professionals can identify potential GST issues before they become problems
• The cost of professional advice is generally GST-deductible and can prevent costly errors

Conclusion

GST compliance in the hospitality industry involves navigating some complex rules around accommodation, food and beverage service, and events. By understanding these specific requirements and implementing appropriate systems, hospitality businesses can ensure they meet their GST obligations while maximizing legitimate input tax claims.

Effective record keeping, staff training, and the right technology solutions are key to managing GST in this dynamic industry. While GST adds a layer of complexity to hospitality operations, with proper planning and systems, it should be a manageable aspect of business administration rather than a burden.

Remember that GST is ultimately a pass-through tax├ö├ç├Âbusinesses collect it from customers and pass it on to Inland Revenue. The key is ensuring that GST is correctly accounted for at each stage of your hospitality operations, from taking bookings to providing services and processing payments.