The perils of shoebox accounting by Freddy Farmer
Glovebox, shoebox, Freddy's fairly basic with his filing system when it comes to paperwork for GST claims. But, he's also very aware it's not very cost-effective – or great for relations – to hand his accountant a box full of paper, coins and lolly wrappers.
So, Freddy starts the task of sorting out the paper pile. He knows the basics. No GST tax invoices are needed for purchases under $50 but he does need to keep those EFTPOS dockets to prove the expense so he can still also make a claim for income tax purposes.
Then there are the purchases between $50 and $1000 for which he needs only a simplified tax invoice with date, name and GST number of supplier, description of goods, total amount payable and that GST is included.
But for larger purchases, of $1000 or more, Freddy needs a more detailed tax invoice with additional information including Freddy's trading name and address as the recipient, a full description of the goods and/or services supplied and quantity/volume along with the GST and the total amount payable.
Freddy's learnt the hard way it pays to file these invoices straight away – thus his glovebox system – because the GST-registered supplier can only issue one original tax invoice for each taxable supply. So, if Freddy loses it, the supplier may issue a 'copy only' version, but that's a hassle – especially in retrospect.
Then there are the rules about secondhand goods. Freddy can't claim GST on some secondhand goods such as primary produce (unless previously used), goods supplied under a lease or rental agreement, livestock and secondhand goods consisting of any fine metal of any degree of purity.
But for all other secondhand goods the same rules for GST and tax invoices apply as for all other goods liable for GST.
For instance, Freddy recently bought a small mobile milk feeder from his neighbour for $2500 plus GST. The neighbour wrote the invoice out to 'Freddy', but as Freddy actually trades as a company, he needs to go back to the seller and ensure he gets the tax invoice issued in the right name 'Freddy Farmer Ltd'. If he operated as a trust, it would need to be issued as 'Freddy Farming Trust'.
Then there's the case of secondhand goods bought from people who aren't GST-registered intended for use in taxable activity. Like the motorbike Freddy bought on TradeMe from a hobby-farmer who isn't GST registered. As long as Freddy has the name and address of the person who sold it, he can claim 15 per cent of the purchase price in his GST return period the payment was made in.
Freddy ends up spending all weekend sorting through this pile, ensuring all the paperwork is valid for each purchase and filed for the ease of his accountant. And, there are a few cases – like the secondhand milk feeder invoice – where he'll have to go back and get some updated details.
Freddy really needs to organise a better filing system, not just because it's more efficient and makes for a happier accountant; but if he ever has a tax audit, for example, good and complete records will make life easier and not result in GST claims or tax deductions being denied.
Electronic record storage has been acceptable for some time now, but only recently has Inland Revenue recognised and approved the ability for records to be stored offshore or 'in the cloud' by certain approved online accounting providers with offshore data centres.
Or for those who for whatever reason still prefer the old tried and true method of paper copies then a hole-punch, folder, monthly filing routine and dedicated storage space appropriately categorised for records and original receipts would do a good job.