GST Refunds: How They Work and How to Get Yours

If you've paid more GST on expenses than you've collected on sales, you may be eligible for a GST refund from Inland Revenue. Here's how it works.

When Can You Claim a Refund?

Refunds happen when your input GST (on business expenses) exceeds the GST you've collected from sales. This often occurs with large initial expenses.

There are several common scenarios where businesses find themselves in a GST refund position:

Business Startup Phase

New businesses often incur significant expenses before generating much revenue. You might purchase equipment, inventory, or other assets, all of which include GST that you can claim back. If these expenses exceed your initial sales, you'll be due a refund.

Major Asset Purchases

When your business makes a large purchase, such as equipment, vehicles, or property, the GST on this purchase might exceed the GST you collect in that period, resulting in a refund.

Seasonal Businesses

If your business has a seasonal pattern, you might have periods of high expenses and low sales, leading to GST refunds during your off-season.

Export-Focused Businesses

Businesses that primarily export goods or services don't charge GST on their exports (they're zero-rated), but can still claim GST on their expenses. This often results in regular refund positions.

Businesses with Regular Investment

Companies that consistently invest in growth through new assets or expansion may find themselves in a refund position during periods of significant investment.

Understanding Input and Output Tax

To understand GST refunds, it's important to grasp the concepts of input and output tax:

Output Tax

This is the GST you collect from your customers when you make sales. For standard-rated supplies, this is 15% of the value of your sales. This is money you collect on behalf of Inland Revenue.

Input Tax

This is the GST you pay on your business purchases and expenses. You can generally claim this back, effectively getting a refund of the GST you've paid to your suppliers.

Net GST Position

Your GST return calculates the difference between your output tax (GST collected) and input tax (GST paid). If you've collected more than you've paid, you make a payment to Inland Revenue. If you've paid more than you've collected, you're entitled to a refund.

For example:

• Output tax (GST collected on sales): $1,500
• Input tax (GST paid on expenses): $2,000
• Net GST position: $500 refund due

Filing for a Refund

Submit your GST return as usual. Inland Revenue will calculate if a refund is due based on the amounts entered.

The process is straightforward:

1. Complete your GST return accurately, ensuring you've included all eligible expenses with their GST component.
2. Enter your sales information (Box 5 for standard-rated and Box 6 for zero-rated supplies), which will calculate your output tax.
3. Enter your purchase information (Box 9), which will calculate your input tax.
4. Include any adjustments if applicable (Box 10).
5. Submit the return through myIR by the due date.

The system will automatically calculate whether you have a payment to make or a refund due. If your input tax exceeds your output tax, the return will show a refund amount.

It's important to ensure your return is accurate and that you have valid tax invoices to support all your GST claims. Incorrect claims can lead to delays in processing your refund or potential penalties.

Receiving the Refund

If approved, the refund will be credited to your account. Make sure your bank details are correct in the Inland Revenue portal.

Here's what to expect after filing:

Processing Time

Inland Revenue typically processes straightforward GST refunds within 15 working days. However, several factors can affect this timeframe:

• First-time refunds may take longer as Inland Revenue establishes your refund history
• Large or unusual refunds might trigger additional verification
• Incomplete information or discrepancies can cause delays
• High-volume periods (like around major filing deadlines) might extend processing times

Payment Methods

Refunds are typically paid via direct credit to your nominated bank account. Occasionally, Inland Revenue might issue a cheque, though this method is being phased out.

Refund Notifications

You'll receive notification in myIR when your refund has been processed. This will show the amount and when it was paid.

What Can Delay Your Refund?

Several factors might delay the processing of your GST refund:

Verification Checks

Inland Revenue may conduct verification checks before processing refunds, especially in these situations:

• First-time refund claims
• Unusually large refunds
• Significant changes in your GST pattern
• Random selection for review

These checks are a normal part of tax administration and don't necessarily indicate any problem with your return.

Missing or Inadequate Documentation

If Inland Revenue requests supporting documentation and you cannot provide valid tax invoices or other required evidence, your refund may be delayed or denied.

Compliance Issues

Outstanding returns or tax debts in other areas (such as income tax) might affect the processing of your GST refund. In some cases, Inland Revenue may offset your GST refund against other tax debts.

Incorrect Information

Errors in your GST return or in your business details (such as bank account information) can cause delays.

Maximizing Legitimate GST Refunds

To ensure you receive all the GST refunds you're entitled to:

Claim All Eligible Expenses

Make sure you're claiming GST on all eligible business purchases. Common overlooked expenses include:

• Vehicle expenses (fuel, maintenance, parking)
• Home office expenses (for business use portion)
• Professional services (accounting, legal)
• Small items and incidentals
• Business travel expenses

Timing Considerations

If you're planning major purchases, consider their timing in relation to your GST period:

• Making large purchases early in your GST period means you can claim the input tax credit sooner
• If you have flexibility in when to make major purchases, doing so during a period of lower sales can increase the likelihood of a refund position

Keep Impeccable Records

Maintain organized records of all tax invoices and receipts. This not only ensures you don't miss claiming any GST but also means you can quickly provide documentation if Inland Revenue requests it, preventing refund delays.

What to Do If Your Refund Is Delayed

If you've filed a return showing a refund due and it hasn't been processed within 15 working days:

1. Check your myIR account for any messages or requests for additional information
2. Verify your bank details are correct in the Inland Revenue system
3. Contact Inland Revenue to inquire about the status of your refund
4. Be prepared to provide supporting documentation if requested

Approach any inquiries professionally and cooperatively. Most delays are procedural rather than indicative of problems with your return.

GST Refunds for One-Off Situations

Some specific situations may result in significant one-time GST refunds:

Business Assets Written Off or Destroyed

If business assets that you've claimed GST on are written off or destroyed (e.g., due to damage or theft), you may be able to claim a GST adjustment, potentially resulting in a refund.

Overpayments

If you discover you've overpaid GST in previous periods, you can make adjustments in your current return (for smaller amounts) or file amended returns (for larger amounts).

Change in Business Structure

When changing business structure (e.g., from sole trader to company), there may be GST implications that result in refunds during the transition.

Planning for Refunds in Your Cash Flow

If your business regularly receives GST refunds, or you anticipate a significant refund:

• Don't rely on receiving the refund by a specific date; build in a buffer in your cash flow planning
• Consider the timing of your GST filing to optimize when refunds might be received
• Maintain good communication with Inland Revenue to address any issues promptly

Being proactive in your GST management can help ensure refunds are processed efficiently and contribute positively to your business's cash flow.

Conclusion

GST refunds are an important part of New Zealand's GST system, ensuring that businesses only ultimately pay GST on their value addition, not on their expenses. Understanding when refunds apply, how to file for them, and what might affect processing times can help you manage your cash flow more effectively.

By maintaining good records, claiming all eligible input tax, and filing accurate returns, you can ensure you receive all the GST refunds you're entitled to in a timely manner. Remember that GST refunds represent your own money being returned to youÔÇömoney that you've already paid to suppliersÔÇöso it's worth ensuring you claim everything you're eligible for.