Changes to GST effective 1st October 2010
Only 60 more sleeps before all GST registered taxpayers have to increase their GST rates. Find out how it will work by printing off and folding in half the attached GST Calculator, because it is not going to be quite as simple as it is now.
The Government, as late as last Friday, announced they are still working on fine tuning the transitional arrangements. It is most important for you to make sure you have excellent records of all outstanding debtors (who owe you) and creditors (who you owe) as at 30th September 2010. This is because all receipt and payments after that date will attract GST at the new increased rate.
There is provision to allow for a one off adjustment to take in account the impact of those uncollected and unpaid debts flowing through your business after 1 October which for most of you will occur when you have to complete your Nov/Dec 2010 GST return due on the 15 January 2011.
For some of our very small clients, it might be a good time to take stock and make a decision as to whether you should continue to be registered for GST if your turnover is less than $60,000 per annum. Please consider the following for more details http://www.ird.govt.nz/gst/cancelling/
For all other clients you need to start planning now for the rate increase to 15%. You need to consider now the impact this will have on your GST returns, pricing, stationery and software. Don’t leave it until you only have a few sleeps to go. The following is a list of important matters you may need to consider and prepare for in the meantime and we will be in touch once we have clearer instructions from the IRD.
• Calculation GST
• GST Invoices & Receipts
• Time of Supply
• Agreement for goods and services delivered over time
• Coin and token machine
• Delayed settlement transactions
• Mortgage wrap transactions
• Dishonoured cheques
• Hire purchase transactions
• Local authority rates
• Road user charges
• Tokens, stamps and vouchers
• GST on Imports
• Cancelling your GST registration
• Penalties and use of money interest
• Be prepared
Calculating GST
There are several methods that can be used to calculate the GST component on GST-inclusive and exclusive amounts. Check out our attached calculator, make yourself familiar with it and keep it handy as the calculations are now nowhere near as simple as they were before. If you need help in calculating your new prices please contact us early.
Filing your GST returns
GST periods starting from 1 October 2010
You'll need to use the new 15% rate from that date forward if:
• you file your GST returns monthly, or
• you file every two or six months and your return period ends on the 30 September 2010.
GST periods that span 1 October 2010
You'll need to use the 12.5% rate for the period up to and including 30 September 2010, and the 15% rate for the period on and after 1 October 2010, if:
• you file your GST returns every two or six months, and
• your return period spans the date of the GST rate change.
The IRD are currently developing a special one-off transitional GST return to cover the rate change. After this time you'll go back to using your normal GST return. They have promised to provide more information about this return and how it will work. We will let you know as soon as we have this.
GST Invoices and Receipts
From 1 October you'll need to make sure you include GST at 15% on all invoices you generate so make sure your invoicing software will allow for this modification. Conversely make sure all invoices you receive after the 1 October show the correct rate and amount calculated for GST in order for you to claim the correct amount back.
Time of Supply Rules
When there is a GST rate change (in this case from 12.5% to 15%) the general time of supply rule applies for most transactions. Find out more about the time of supply rules.
When there is a GST rate change (in this case from 12.5% to 15%) the general time of supply rule applies for most transactions. This means that a supply is considered to take place at earlier of :
• the time an invoice is issued, or
• the time any payment is received by the supplier
However, there are some special time of supply rules for specific transactions which you can find covered at http://www.ird.govt.nz/gst/additional-calcs/calc-spec-supplies/calc-special/
This website cover such things as accommodation for long term residence with rates of GST will move from 7.5% to 9% after the 1 October 2010 for all occupants who stay longer than 4 weeks. If a joint charge covers all supplies for bed and breakfast, the fully taxable supplies (breakfast) must be separately identified from the domestic goods or services (bed).
Agreement for goods and services delivered over time
Where there is agreement to deliver goods and services over a period of time, for example car parking or gym contracts, you account for GST on the transaction at the earlier of the time:
• an invoice is issued, or
• any payment is received by the supplier
Coin and token-operated machines
If you supply goods or services through any coin-operated device or machine, such as a video game, snack machine or parking meter, you must account for the total value of the coins removed from the machine. Include the amount in the return that covers the date you removed the coins.
Delayed settlement transactions
If you are registered for GST and enter into a property transaction with a delayed settlement date, you are required to return GST on an invoice basis for the supply if it exceeds $225,000 including GST. This is regardless of your accounting basis. This means even if you are on a payments basis for GST you must still account for the GST at the earlier time of an invoice being issued or when payment is received. This will not apply if the sale and purchase agreement requires settlement to occur within 365 days.
Mortgage Wrap transactions
If you process property wrap transactions we suggest you consult your specialist tax advisors as this is an area requiring correct treatment. Indications are that if the time of supply is prior to 1 October 2010 then all capital repayments subsequent to the 30th September will still be subject to GST at the old rate of 12.5% but any recoveries for insurance or other charges will be at the new rates. This being the case then special accounts with the old rates will need to be setup and you should seek our advice on how to do that.
Dishonoured cheques
If a cheque is dishonoured, it is as though the payment didn't occur, and you don't account for it. Please contact us to correct your return if you've already filed a GST return that includes a dishonoured cheque.
Hire purchase agreements
You must account for all hire purchase sales in the taxable period covering the date you enter into the agreement, regardless of the accounting basis you use.
If you buy goods on hire purchase, you may claim a deduction in the taxable period covering the date you enter into the agreement, regardless of the accounting basis you use.
Local authority rates
If you use the invoice basis and you pay rates in one lump sum, you may claim a GST credit when you make the payment or receive an invoice, whichever is earlier. If you pay rates in instalments, you may claim a credit when each instalment is due or paid, whichever comes first.
For the payments and hybrid basis, you claim a credit for rates when you make payment, provided you hold a tax invoice.
Road user charges (RUC)
For RUCs, time of supply occurs when any payment is made to the New Zealand Transport Agency or one of their agents. The supply is accounted for in the period when the payment is made
Tokens, stamps and vouchers
There are special rules for the sale of gift vouchers, postage stamps, milk tokens and the like. The supplier should treat tokens, vouchers and stamps as a supply for GST purposes at the time a customer buys them.
The law recognises that it may be impractical to return the GST at the time when the customer buys a voucher. Instead, the GST could be accounted for when the customer actually exchanges the voucher for the monetary value of the goods or services purchased, where the supplier of the voucher and supplier of the goods or services agree.
GST on imports
GST on imports is affected by the increase in GST. Please be sure to keep an eye on this website for guidance on how GST will affect the cost of your imports.
Cancelling your GST registration
If you need to cancel your GST registration but still own assets which you intend to retain after you have cancelled your registration, you'll need to account for GST on those assets as part of your GST cancellation. Find out more about cancelling your GST registration.
http://www.ird.govt.nz/gst/cancelling/cancel-when/
Penalties and Use of Money Interest
What if you get it wrong? Well the proposed new section 183AA of the Tax Administration Act 1994 provides some relief with the automatic remission of late payment and late filing penalties and use-of-money interest in certain circumstances. Those circumstances are:
• that the lateness in filing or paying is reasonably attributable to the change in the GST rate (for example, the required systems changes to accommodate the new rate have not been able to be made in time); and
• the registered person has made reasonable efforts to comply and, therefore, shortfall penalties such as lack of reasonable care, would not be applicable.
http://taxpolicy.ird.govt.nz/publications/2010-sr-budget2010-special-report/gst-rate-increase
For all clients on a Payments Basis for GST it is most important that steps are taken to accurately record both your closing debtors (money customers owe you) and your taxable creditors (what you owe other people). To assist with the later more and more of our clients are now using CRED-it to accurately record all the monies they owe to their suppliers www.cred-it.biz . By using CRED-it you will be able to ascertain in a flash monies owed, so that the one off calculation you will need to do in your first GST after the change can be easily audited and will demonstrate to the IRD that you have “made reasonable efforts to comply”. Please call us if you would like to discuss CRED-it in more detail.
Be prepared
Don’t forget there was a significant increase in demand for goods and services prior to the last GST increase when it moved from 10% to 12.5%. Be aware this may occur again so don’t get caught out by expecting that increased demand to continue, there could be a significant drop off in the short term.
Please be sure to plan early as those 60 sleeps will disappear quickly.
We will send you more specific instructions on where and what to change once we have more information from the IRD.
Always here to help you