Understanding how goods and services tax (GST) works for 1-person businesses can help simplify operations for the estimated 400,000 sole traders in New Zealand. Once your income starts to grow, you’ll likely have questions about GST registration, GST on sales, and what you can claim.

Below, you’ll learn how to manage GST as a sole trader in New Zealand, including registration thresholds, claimable expenses, accounting methods, and the systems that keep everything running.

What’s in this article?

• How does GST for sole traders in New Zealand work?
  
• When must a sole trader register for GST?
  
• How do sole traders charge, collect, and account for GST?
  
• How do input tax credits work for sole traders?
  
• What expenses can sole traders claim?
  
• What GST accounting methods and filing options are available to sole traders?
  
• What are the common challenges for sole traders with GST obligations?
  
• How can sole traders meet ongoing GST requirements?
  
• How Stripe Tax can help
  

How does GST for sole traders in New Zealand work?

GST is a 15% tax added to most goods and services sold in New Zealand, including those sold or provided by sole traders. As a sole trader, you charge GST on your sales, claim back the GST built into your business expenses, and pay or receive the difference from the Inland Revenue Department (IRD).

A sole trader is simply an individual who runs a business on their own. There’s no separate legal entity: your IRD number is your business ID. With GST, you’re treated the same as any other “person in business.”

If you’re carrying out a taxable activity in New Zealand with the goal of earning income, GST applies once you meet the registration criteria. Because there’s no legal separation between you and the business, the responsibility for keeping records and filing returns sits squarely with you.

When must a sole trader register for GST?

As a sole trader, you must register for GST once your taxable income is at least 60,000 New Zealand dollars (NZD) in any rolling 12-month period, or if you expect it to reach that amount in the coming 12 months. You can also choose to register before your taxable income exceeds the threshold, if that suits your business model. Many sole traders do this to claim GST on startup costs or because their clients are registered for GST and won’t feel the impact of GST-inclusive pricing.

There are reasons to delay registration when you can. For instance, you might serve everyday customers who can’t claim GST back. Keeping prices GST-free can help you stay competitive while your turnover is still modest.

How do sole traders charge, collect, and account for GST?

You must add GST to the price of most goods and services sold in New Zealand. Your invoices or receipts need to show important details, such as your GST number, the GST amount, the total, and a clear description, so your customers can use them for their own records. Clean, organized records make your return easier to file and defend, if the IRD ever reviews it.

The GST portion of every payment you receive, which is called output tax, is money you’re temporarily holding for the government. Many sole traders move that amount into a separate bank account as payments come in so it doesn’t get mixed into working cash. Input tax, on the other hand, is the GST you pay on business expenses. At each filing cycle, you total your output tax, subtract your input tax, and pay (or receive) the difference. This routine becomes much simpler if you track transactions as you go rather than backfill an entire period at once.

How do input tax credits work for sole traders?

Input tax credits are one of the biggest advantages of being registered for GST. Here’s how they work:

• Business-only expenses: You can claim GST on expenses that directly relate to your taxable activity. If something is for business use only (e.g., equipment, software, product), you can generally claim the full GST shown on the invoice.

• Mixed-use expenses: For costs that blend personal and business use, you can claim only the business portion. That might be a logbook percentage for a vehicle, a square meter calculation for a home office, or a reasonable estimate tied to how you actually use an item.

• Principal purpose method for lower-value assets: For purchases up to 10,000 NZD, you can usually claim full GST if the item’s main purpose is business. For higher-value assets, apportioning is required.

• Used goods: If you buy used goods from someone who isn’t registered for GST, you might still be able to claim a credit based on the GST fraction of the price. This is useful when you buy used equipment or furniture for your business.

To claim input tax credits, you must hold proper taxable supply information. No invoice means no claim so keep digital copies of all receipts.

What expenses can sole traders claim?

Claimable expenses shape both your GST position and your taxable income. But you need to tie each cost back to the work you do and document how you use it. Here are some commonly claimed expenses.

Home office costs

If you work from home, you can claim a fair share of household costs such as power, internet, rent, and insurance. You use a floor area calculation to reflect how much of your home is used for work. With GST, you claim the same percentage of the GST built into those bills.

Vehicle and travel

When you use your vehicle for business travel, you can claim costs for fuel, repairs, maintenance, and depreciation based on your business use percentage. A 90-day logbook is the standard way to establish that percentage, and GST is claimed only on the business share. Travel expenses for client work (e.g., flights, accommodation, parking) are also claimable when they directly support your taxable activity.

Equipment and tools

Laptops, tools, office furniture, and other gear purchased for your business are deductible. Low-value assets can often be expensed immediately. Larger purchases might need to be depreciated. If the supplier charged GST and the item is for your business, you can claim that GST.

Stock and materials

If you sell goods, the cost of stock or raw materials is deductible and the GST built into those purchases is fully claimable. You might also be able to claim GST on certain imported goods.

Services and subscriptions

Business-related software, marketing costs, accounting fees, and memberships are generally deductible. Ensure the supplier is registered for GST before you claim the GST portion.

What GST accounting methods and filing options are available to sole traders?

Your GST accounting method determines when transactions appear on your return. Your filing frequency determines how often you work with the IRD. You’ll need to choose both when you register for GST.

Accounting methods

How you track your money makes a difference in how you’ll report GST. These are the main accounting methods businesses use:

• Cash basis: You account for GST when money actually changes hands. That aligns with cash flow and avoids paying GST to the IRD before you’ve collected it. This is the go-to method for many sole traders.

• Accrual basis: You recognize GST when an invoice is issued or received. This is required for very large businesses but is optional for everyone else. This method works well if you already use accrual accounting, but it can be a financial strain if customers pay slowly.

• Hybrid basis: Sales are treated on an accrual basis and expenses on a cash basis. This is allowed but not common, since it can create mismatches and add complications without much benefit for smaller operators.

Filing timing

The IRD allows you to choose different filing frequencies depending on your income and what makes the most sense for your business. Here are the options:

• Six-month filing: This is available if your turnover is under 500,000 NZD. It’s convenient if you have low activity, but the returns can be heavier to prep and refunds take longer to arrive.

• Two-month filing: This option is regular enough to keep you accurate, but it doesn’t dominate your admin time. It’s also the most common choice for sole traders.

• Monthly filing: Businesses that regularly receive refunds or have large transaction volumes can opt for monthly filings. While this creates more touchpoints, it also speeds up refund cycles.

Adjusting your setup

Online registration through myIR is quick and requires you to select an accounting method and filing frequency so you can begin charging and reporting GST from your official start date. As your business develops, you can apply to change them. If your income, transaction volume, or admin capacity shifts, your GST settings can shift with you.

What are the common challenges for sole traders with GST obligations?

Many GST issues stem from timing, recordkeeping, or the difficulty of running everything yourself. It’s easy to exceed the 60,000 NZD threshold in a rolling 12-month window without noticing. If you register late, the IRD can backdate your start date and you’ll owe GST on past sales you didn’t charge.

Some sole traders sign up before they need to, end up with extra admin, and face customer pushback on GST-inclusive pricing. Register below the threshold only if it makes sense for your business. And don’t stop filing GST without formally deregistering. Don’t forget to pay GST on assets you keep either when you deregister. This can quickly create issues.

It’s also common for sole traders to use a mismatched accounting basis (e.g., accrual basis) or filing cycle (e.g., monthly), which creates unnecessary cash flow strain and administrative burden. These settings are adjustable, but many people forget they can change them. Missing invoices, lost receipts, and blended personal and business transactions are other causes of incorrect claims or missed credits. The IRD expects you to keep clean documentation for at least seven years, which means that consistent habits matter.

Be wary of the mistakes in GST returns. It’s common to misstate GST, claim GST where none exists, or forget adjustments for mixed-use items. Small errors can be corrected in the next return, but larger ones require a formal adjustment.

How can sole traders meet ongoing GST requirements?

Staying on top of GST is about building systems that keep your records clean, your cash flow steady, and your filing rhythm predictable. Use digital tools to track income and expenses. Accounting software or well-structured spreadsheets minimize errors and keep GST amounts visible as you go. Tools like Stripe Tax can automatically apply GST to online transactions and show clean data for filings, decreasing manual work.

Separate your GST from your operating cash. It helps to move the GST portion of each payment into a dedicated account so you’re never scrambling at due dates. You should also reconcile regularly, at least weekly or monthly, to keep receipts, invoices, and bank activity up-to-date. A periodic check-in with an accountant or bookkeeper can prevent small mistakes from becoming unmanageable.

How Stripe Tax can help

Stripe Tax reduces the complexity of tax compliance so you can focus on growing your business. Stripe Tax helps you monitor your obligations and alerts you when you exceed a sales tax registration threshold based on your Stripe transactions. In addition, it automatically calculates and collects sales tax, value-added tax (VAT), and GST on both physical and digital goods and services—in all US states and in more than 100 countries.

Start collecting taxes globally by adding a single line of code to your existing integration, clicking a button in the Dashboard, or using our powerful application programming interface (API).

Stripe Tax can help you:

• Understand where to register and collect taxes: See where you need to collect taxes based on your Stripe transactions. After you register, switch on tax collection in a new state or country in seconds. You can start collecting taxes by adding one line of code to your existing Stripe integration, or add tax collection with the click of a button in the Stripe Dashboard.

• Register to pay tax: Let Stripe manage your global tax registrations and benefit from a simplified process that prefills application details—saving you time and simplifying compliance with local regulations.

• Automatically collect tax: Stripe Tax calculates and collects the right amount of tax owed, no matter what or where you sell. It supports hundreds of products and services and is up-to-date on tax rules and rate changes.

• Simplify filing: Stripe Tax seamlessly integrates with filing partners, so your global filings are accurate and timely. Let our partners manage your filings so you can focus on growing your business.

Learn more about Stripe Tax, or get started today.