Effective Goal Setting and Progress Tracking for Financial Success

Effective GST compliance goes beyond simply filing returns on time. For New Zealand businesses, developing robust compliance systems and being prepared for potential Inland Revenue audits or reviews is an essential part of good tax management.

Building a GST Compliance Framework

Key Elements of GST Compliance

A comprehensive GST compliance framework includes:

• Proper registration and regular review of registration details
• Accurate classification of supplies (standard-rated, zero-rated, or exempt)
• Compliant tax invoice generation and management
• Correct application of time of supply rules
• Accurate input tax credit claims
• Timely and accurate return filing and payment
• Robust record-keeping systems
• Regular compliance reviews and reconciliations

These elements work together to ensure all GST obligations are met consistently.

GST Governance and Responsibility

Clear responsibility for GST compliance is essential:

• Designate specific individuals responsible for GST compliance
• Ensure staff involved in GST processes have adequate training
• Develop documented policies and procedures for GST handling
• Implement review processes to catch errors before filing
• Consider regular external reviews of GST systems
• Establish escalation procedures for complex or uncertain GST issues

Even in small businesses, clear responsibility helps prevent compliance gaps.

Technology and Systems

Leverage technology for more robust GST compliance:

• Use accounting software with strong GST capabilities
• Implement automated invoice generation with GST validation
• Consider specialised GST compliance tools for complex businesses
• Ensure systems can generate accurate GST reports and reconciliations
• Use digital tools for tax invoice storage and retrieval
• Implement system controls to prevent common GST errors

The right technology reduces manual errors and streamlines compliance.

GST Risk Management

Identifying GST Risk Areas

Businesses should proactively identify GST risk areas:

• Complex transactions like property, financial services, or international supplies
• Areas with specific GST rules (e.g., second-hand goods, imported services)
• High-value transactions with significant GST implications
• Business changes that may affect GST treatment (new products, markets, or business models)
• Processes with manual GST calculations or adjustments
• Areas where staff have limited GST knowledge or training

Understanding where errors are most likely helps focus compliance efforts.

Common GST Errors and Issues

Be aware of these frequently occurring GST problems:

• Incorrect classification of supplies (standard-rated, zero-rated, or exempt)
• Missing or incomplete tax invoices for input tax claims
• Errors in time of supply application
• Failing to account for GST on non-monetary consideration
• Incorrect treatment of mixed-use assets and private use adjustments
• Errors in imported goods or services GST treatment
• Miscalculations in apportionment for partially exempt businesses
• Failing to account for GST on property transactions correctly

Regular review processes should specifically check for these common errors.

Preventive Controls

Implement controls to prevent GST errors:

• Staff training on GST fundamentals relevant to their roles
• Documented GST policies and procedures
• System validations for tax code selection
• Invoice templates with required GST elements
• Approval processes for unusual or high-value transactions
• Regular GST updates and refreshers for relevant staff
• Clear processes for handling unusual GST situations

Preventing errors is more efficient than correcting them later.

Record-Keeping for GST Compliance

Required GST Records

Maintain comprehensive records including:

• All tax invoices issued to customers
• Tax invoices received from suppliers
• Other supporting documents for GST transactions
• Bank statements showing GST-inclusive transactions
• Accounting records with GST components clearly identified
• Workpapers for GST adjustments and calculations
• Documentation supporting zero-rating or GST-exempt treatment
• Records of mixed-use assets and private use calculations
• Copies of GST returns and working papers

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

Electronic Record-Keeping

Digital record-keeping offers several advantages:

• More efficient storage and retrieval
• Easier sharing with advisors or Inland Revenue when needed
• Better backup and disaster recovery options
• Ability to maintain records for the required 7-year period without physical storage issues
• Potential for automated analysis and reconciliation

Ensure electronic systems meet Inland Revenue's requirements for record integrity and accessibility.

Organizing Records for Efficient Retrieval

Structure your record-keeping system for easy access:

• Organize records by GST return period
• Maintain separate files for special GST situations (e.g., zero-rated exports, capital asset purchases)
• Create clear audit trails linking transactions to supporting documentation
• Index records for easy location during reviews or audits
• Implement logical naming conventions for digital files
• Consider using document management systems for larger businesses

Well-organized records save time during internal reviews and external audits.

GST Return Preparation and Review

Pre-Filing Review Process

Before filing GST returns, conduct a thorough review:

• Reconcile GST outputs to sales records
• Reconcile GST inputs to purchase records
• Check for unusual variances from prior periods
• Verify that all required adjustments have been made
• Ensure supporting documentation exists for significant items
• Review zero-rated supplies for compliance with requirements
• Check GST account reconciliation to confirm accuracy

A systematic review process catches errors before they become problems.

GST Return Analytics

Analyzing GST returns can identify potential issues:

• Compare GST-to-sales ratios across periods
• Review trends in input tax to identify unusual patterns
• Compare actual GST outcomes to forecasts or budgets
• Analyze GST by business segment or product line
• Monitor the ratio of zero-rated supplies to total supplies
• Track adjustments as a percentage of total GST

These analytics can highlight areas requiring further investigation.

Managing Filing Deadlines

Develop systems to ensure timely filing:

• Maintain a tax calendar with all GST due dates
• Build in preparation time before deadlines
• Set internal deadlines earlier than statutory deadlines
• Implement reminder systems for key dates
• Have contingency plans for staff absences around filing times
• Consider using tax agents who may access extended filing dates

Late filing can lead to penalties and increased scrutiny from Inland Revenue.

GST Reconciliations and Checks

GST Account Reconciliation

Regularly reconcile your GST account:

• Compare the GST ledger balance to the GST return position
• Investigate and resolve any discrepancies
• Reconcile GST payments and refunds to Inland Revenue statements
• Verify that beginning balances match prior period ending balances
• Check that GST adjustments have been correctly recorded
• Ensure the GST account correctly reflects timing differences

Regular reconciliation prevents small issues from becoming significant problems.

Sales and GST Output Reconciliation

Verify that GST output is correctly captured:

• Reconcile total sales to GST outputs declared
• Check that all sales invoices have been included
• Verify correct GST treatment of different revenue streams
• Ensure credit notes have been properly accounted for
• Check that timing differences are handled correctly
• Verify treatment of deposits, prepayments, and progress payments

This reconciliation helps ensure all GST on sales is correctly declared.

Purchases and GST Input Reconciliation

Verify that GST input claims are valid:

• Reconcile total purchases to GST inputs claimed
• Verify tax invoices exist for all significant input tax claims
• Check that personal or non-deductible expenses are excluded
• Ensure correct apportionment for mixed-use assets
• Verify correct handling of imported goods and services
• Check that timing differences are handled correctly

This reconciliation helps prevent overclaiming of input tax credits.

GST Audits and Reviews

Types of Inland Revenue GST Interventions

Inland Revenue uses several approaches to review GST compliance:

• GST refund integrity checks: Reviews of GST returns claiming refunds
• GST return reviews: Limited scope reviews of specific aspects of GST returns
• GST audits: Comprehensive examinations of GST compliance over multiple periods
• Industry-specific GST reviews: Focused on industries with known GST risks
• Transaction-specific reviews: Examining specific high-value or unusual transactions
• System reviews: Examining the business's GST processes and controls

Understanding these different approaches helps you prepare appropriately.

Inland Revenue's Risk-Based Approach

Inland Revenue targets GST reviews based on risk indicators:

• Significant or persistent GST refund positions
• Unusual changes in GST patterns
• Industry-specific risk factors
• Inconsistencies between GST and income tax positions
• Specific transaction types (e.g., property, significant assets)
• Past compliance issues or late filing history
• Third-party information indicating potential issues

Understanding these risk factors can help you anticipate potential areas of focus.

Preparing for a GST Audit

If selected for a GST audit, take these steps:

• Engage professional representation if needed
• Understand the scope and focus of the audit
• Organize relevant documentation in advance
• Prepare explanations for unusual items or GST treatments
• Brief staff who may need to answer auditor questions
• Conduct a preliminary self-review of the areas being examined
• Address any identified issues proactively

Proper preparation demonstrates a commitment to compliance and can make the audit process more efficient.

Managing GST Audit Processes

During the Audit

Best practices during a GST audit include:

• Designate a single point of contact for the auditor
• Maintain a professional and cooperative approach
• Respond to information requests promptly and completely
• Keep a log of information provided and discussions held
• Ensure you understand any concerns raised by the auditor
• Address straightforward issues quickly while taking time for complex matters
• Consider the implications of audit findings for other tax periods

A well-managed audit process helps reach a fair and timely resolution.

Responding to Audit Findings

When addressing audit findings:

• Review findings carefully before accepting them
• Provide additional information or explanation if findings are based on misunderstandings
• Consider requesting technical clarification for complex issues
• Distinguish between factual disagreements and interpretation differences
• Understand the penalty and interest implications of any adjustments
• Consider dispute options for significant disagreements
• Document agreed outcomes clearly

A thoughtful response to findings protects your rights while demonstrating good faith.

Post-Audit Improvements

After an audit, use the experience to strengthen compliance:

• Address any system or process weaknesses identified
• Update GST policies and procedures based on audit findings
• Provide additional staff training in problem areas
• Implement new controls to prevent similar issues
• Consider voluntary disclosures for similar issues in non-audited periods
• Schedule follow-up reviews to ensure improvements are effective
• Maintain documentation of changes made in response to audit findings

Treating audits as learning opportunities improves future compliance.

Voluntary Disclosures and Correcting GST Errors

When to Make Voluntary Disclosures

Consider voluntary disclosure when you discover:

• Significant GST errors or omissions in past returns
• Incorrect treatment of specific transaction types
• Systematic issues affecting multiple periods
• Errors discovered during internal reviews or system changes
• Issues raised in audits that may affect non-audited periods

Voluntary disclosure typically results in reduced penalties compared to Inland Revenue discovering the same issues.

Process for Voluntary Disclosures

When making a voluntary disclosure:

• Determine the full extent of the issue before disclosure
• Quantify the GST impact accurately
• Prepare supporting documentation and explanations
• Contact Inland Revenue through formal voluntary disclosure channels
• Provide complete and accurate information
• Be prepared to pay any additional GST, interest, and reduced penalties
• Explain steps taken to prevent recurrence

A well-prepared voluntary disclosure demonstrates good faith and commitment to compliance.

Correcting Minor Errors

For smaller GST errors:

• Errors under $1,000 in GST can generally be corrected in your next GST return
• Document the error and correction for your records
• Consider whether the error indicates a system issue requiring attention
• For recurring small errors, consider a voluntary disclosure if the cumulative amount is significant
• Implement process improvements to prevent similar errors

This simplified correction process for minor errors reduces compliance costs while maintaining integrity.

GST Penalties and Interest

Types of GST Penalties

Understanding potential penalties helps with risk management:

• Late filing penalties: For GST returns filed after the due date
• Late payment penalties: For GST payments made after the due date
• Shortfall penalties: For GST errors based on the level of culpability:
  • Lack of reasonable care (20% of tax shortfall)
  • Unacceptable tax position (20% of tax shortfall)
  • Gross carelessness (40% of tax shortfall)
  • Abusive tax position (100% of tax shortfall)
  • Tax evasion (150% of tax shortfall)
• Knowledge-based penalties: For actions like failing to issue a GST invoice when required

These penalties can significantly increase the cost of non-compliance.

Interest on Underpaid GST

In addition to penalties, Inland Revenue charges interest:

• Use-of-money interest applies to underpaid GST
• Interest runs from the original due date until payment
• The interest rate is set periodically by Inland Revenue
• Interest is not deductible for income tax purposes
• Interest applies even if the underpayment was unintentional

Over longer periods, interest can substantially increase the cost of GST errors.

Penalty Mitigation

Several factors can reduce penalty exposure:

• Voluntary disclosure before notification of audit (reduction up to 100% depending on the penalty)
• Voluntary disclosure after notification but before audit starts (reduction up to 40%)
• Good compliance history (previous four years without similar issues)
• Adequate documentation showing reasonable care was taken
• Reliance on professional advice (in appropriate circumstances)
• Systems and processes designed to prevent GST errors

Proactive compliance management reduces both the likelihood of penalties and their potential amount.

GST Compliance Reviews and Health Checks

Internal GST Reviews

Regular internal reviews strengthen compliance:

• Review GST systems and controls periodically
• Test a sample of transactions for correct GST treatment
• Verify that staff are following GST procedures
• Check that tax invoice requirements are being met
• Review unusual or high-risk transactions
• Assess whether GST training needs updating
• Document review findings and follow up on improvements

Regular internal reviews catch issues before they become significant problems.

External GST Health Checks

Consider periodic external reviews:

• Engage GST specialists to review your systems and controls
• Have external advisors test sample transactions
• Seek expert opinions on complex or uncertain GST positions
• Use external reviews to validate internal compliance assessments
• Implement recommendations from external reviews
• Document external review outcomes for potential penalty protection

External expertise provides objective assessment and identifies blind spots in your compliance approach.

Continuous Improvement

Develop a culture of ongoing GST compliance improvement:

• Learn from errors and near-misses
• Stay current with GST rule changes and Inland Revenue guidance
• Regularly update GST policies and procedures
• Provide refresher training for staff involved in GST processes
• Review and enhance technology systems for GST management
• Benchmark your GST processes against best practices
• Document improvements to demonstrate compliance commitment

Continuous improvement reduces compliance risks while increasing efficiency.

GST Compliance Resources

Professional Advisors

Expert assistance strengthens GST compliance:

• Tax accountants with GST expertise
• Tax lawyers for complex GST matters or disputes
• Industry specialists who understand sector-specific GST issues
• System consultants for GST technology solutions
• Training providers for staff GST education

The right professional support prevents costly errors and provides peace of mind.

Inland Revenue Resources

Utilize Inland Revenue's guidance and tools:

• GST guides and publications on the Inland Revenue website
• Interpretive statements and rulings on specific GST matters
• Inland Revenue webinars and seminars
• Business tax information officers for in-person assistance
• The tax information phone line for specific queries
• Online tools and calculators

Inland Revenue resources provide authoritative guidance on GST requirements.

Industry and Professional Resources

Additional resources to support GST compliance:

• Accounting professional body guidance and updates
• Industry association GST materials
• Commercial GST publications and newsletters
• GST webinars and training courses
• Online forums and discussion groups (used with appropriate caution)
• GST-focused software and tools

These resources help you stay current with GST developments and best practices.

Conclusion

Effective GST compliance combines robust systems, clear responsibilities, and regular reviews to ensure all obligations are met accurately and on time. By implementing a comprehensive compliance framework and being prepared for potential Inland Revenue interventions, businesses can minimize GST risks while optimizing legitimate input tax claims.

Remember that GST compliance is not just about avoiding problems├ö├ç├Âit also creates business benefits through better financial information, improved cash flow management, and reduced tax risk. Investing in strong GST compliance processes yields returns through both risk reduction and operational improvements.

With the right approach, GST compliance becomes an integrated part of business operations rather than a separate compliance burden. By treating GST management as an ongoing process rather than a periodic filing exercise, businesses can achieve both compliance and efficiency.