NZ GST Increase – Not Much Time Left
Have you had time to think about the impending GST increase yet? The 1 October 2010 may seem a long way away but will soon be upon us. These are some of the things you need to think about:
- To calculate the GST from a GST inclusive price, divide by 7.666 recurring or 3/23. To calculate the GST inclusive price from the exclusive price multiply by 115%.
- If a transaction spans 1 October the GST rate is that at the time of supply, which is the earlier of an invoice being issued or any payment received.
- If you’re on a Payments Basis, you need to be ready for the one-off adjustment required as at 30 September 2009 for Accounts Receivable & Accounts Payable to ensure the GST is 12.5% on these – see below.
- The price increase resulting is 2.22% e.g. $9.95 becomes $10.17. If your prices are GST-inclusive are you going to increase every product, bear some of the increase yourself, just increase some prices or go up to the next price break i.e. $2.99 to $3.99?
- Will you have a re-pricing nightmare to cope with – signage, brochures & website?
- Can your accounting system cope with two GST rates e.g. for credit notes or payments of invoices raised at the old rate?
- If your business is dependant on government grants are you prepared for the reduction in your income?
- On the positive side, if you get it wrong the IRD are offering a three-month amnesty from late filing and late payment until 31 December 2010.
- In addition, will your business benefit from panic-buying at the old GST-rate? If so, how can you take advantage?
For more practical guidance, see our NZ GST Increase – Action List. Hopefully this is reasonably self-explanatory but if in doubt ask as it’s better to be prepared early for those problems which will undoubtedly arise!
One-Off Adjustment Required for Accounts Receivable & Accounts Payable
Persons on a payments basis will need to review all outstanding Accounts Payable and Accounts Receivable invoices as at the date of the GST rate change and make an appropriate adjustment.
Typically, the adjustment will be required to be made in the GST return to 30 September 2010. If the GST return period spans this date, two GST returns will need to be filed (one up to 30 September 2010 and one from 1 October 2010).
This special adjustment is made by calculating the difference between creditors and debtors immediately before the rate rise and then multiplying the GST exclusive amount outstanding by 2.5% (being the difference between the old and new tax rate). If a positive amount is the result, it is treated as output tax. If the result is a negative amount, it can be claimed as a refund in the next GST return which encompasses October.
A calculation of the special adjustment does not need to be lodged with the IRD but should be kept on file.
To find out more or get help with the GST increase, call 0800 ASK NICK from any New-Zealand phone and get a free, no-obligation review of your systems. You can also get more information by visiting our website: www.abac.co.nz
The information provided in this article is not meant to replace the advice that a professional would provide for your particular circumstances.