The Critical Difference: Exempt vs. Zero-Rated Supplies
Confusing "No GST" types is the #1 reason the IRD denies expense claims. Learn how to protect your refunds.
The 10-Second Rule
If you sell Zero-Rated goods (like exports), you CAN claim GST back on your business costs. If you sell Exempt services (like residential rent), you CANNOT claim any GST back—you are the final consumer.
The Refund Path
1. Understanding Zero-Rated Supplies
Zero-rated supplies are technically taxable, but the rate is 0%. This distinction is vital because it keeps you within the "GST Net." Since you are making taxable sales, you are entitled to recover the GST you pay to your own suppliers.
- • Exported Goods
- • Sale of a "Going Concern"
- • B2B Land Transactions
- • Services to Non-Residents
2. Understanding Exempt Supplies
Exempt supplies are completely outside the GST system. If your business only makes exempt supplies, you cannot register for GST at all. You do not charge GST to customers, and any GST you pay on expenses becomes a permanent cost to your business.
- • Residential Rent
- • Bank Fees & Interest
- • Fine Metal Investment
- • Donated Goods (Non-profits)
Real-World Scenarios
An Auckland dev shop sells a $10,000 app to a US company. They charge 0% GST (Zero-Rated). However, they spent $2,300 on new MacBooks to build it. They CAN claim back the $300 GST on the laptops.
A landlord collects $30,000 in rent (Exempt). They spend $5,750 on a new roof. They CANNOT claim back the $750 GST. The $5,750 is the full cost to them because the supply is exempt.
Comparison at a Glance
| Feature | Zero-Rated (0%) | Exempt |
|---|---|---|
| Charge GST? | Yes (at 0%) | No |
| Claim Expenses? | YES | NO |
| Counts for $60k Threshold? | Yes | No |
The Compliance Checklist
- ✓ Identify if your income is Taxable, Zero-Rated, or Exempt.
- ✓ If mixed, set up an apportionment percentage for shared costs.
- ✓ Keep proof of export (e.g., shipping docs) for all zero-rated sales.
Critical Audit Risk
Claiming GST on expenses related to **Exempt Supplies** is one of the most common red flags in IRD audits. If you have a rental property or financial consulting arm, ensure those costs are strictly excluded from your GST returns to avoid penalties.
Frequently Asked Questions
No. You are "Unregistered". Your supplies are still taxable, but you aren't required to charge GST. Unlike truly Exempt supplies, you can choose to register voluntarily to claim expenses.
No. If the business activity itself is exempt (like managing your own residential rentals), no GST can be claimed on any related overheads, including home office costs.
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