GST - 2010

With the most significant change to GST since 1989 there are a number of issues for businesses to consider. Below I have tried to list them. Please do contact your accountant, financial advisors, or the IRD with any issues specific to your business

How do I price the rise in GST on my stock?

For some business’s this will be simple but for others selling low priced and high volume products, the GST change will affect their margins.

For example an item currently sells for $9.99 GST inclusive. This has $1.11 of GST on it. With the change to 15% GST the item will now have a gross price of $10.21. But because of what is termed “psychological pricing” there is a belief that an item at $9.99 is more attractive to buyers then $10.21.

SO WHAT CAN YOU DO?

• Mix up your pricing – see if you can make the product up to $10.99 or to another price like $10.74 which feels like a discount from $10.99. Lots of big brands and retailers use this strategy.
• Absorb the GST increase and leave the product at the same price.
• Display only the GST exclusive price – risky and must have price tag that says price is GST exclusive. Risky because we have been used to prices including GST.
  

The MYOB website has a useful GST Calculator tool you can use to asses what changing your prices will mean in terms of profit margin

http://myob.co.nz/business/gst-change-2010/tools-downloads/gst-calculator-1257828761742

Decide on a pricing strategy BEFORE October 1^st and allow time to implement it. You may need to perform a full stock take. Will you have to re-sticker stock on the shelves? Do you need additional staff to do this?

Have An Overall Sales Strategy

There will be a rash of retailers, especially those that sell high ticket items i.e. cars, white ware, offering sale prices to beat the GST rise. There is a predicted surge in demand prior to the 1 October. While we haven’t necessarily seen this in the Nelson / Motueka area as yet we still may encounter it. What impact will this have on the economy given the current economic situation? Will there will be a reduced demand thereafter? Could this reduce Xmas sales? Be prepared for surges and slumps.

Contracts

As a general rule the Goods and Services Tax Act 1985 allows for pricing in existing contracts to be increased by the amount of the increase in GST BUT double check all your existing contracts to ensure they don’t explicitly provide otherwise.

Contracts Going Forward – Purchasing:

Purchasers need to ensure that high value contracts where the time of supply is expected to be triggered after the Oct 1st either:

1) include a clause that specifically excludes the application of sections 78(2) of the GST Act

2) contract states that the “purchase” is GST exclusive

3) or state that the GST is at 15%

Only applies to contracts entered into before the expiry of 3 months from the 1 October i.e. before the 1 January 2011

Going Forward – Suppliers

If a mistake is made with contracts entered into between the 1 October and the 31 December 2010, where the time of supply is triggered after the 1 October 2010, you are able to gross up the value of the contracts for the increased GST.

Progress Payments

GST is accounted for in the taxable period that includes whichever is the earlier of when the:

Payment is due,

Payment is received, or

Invoice is issued

Hire Purchase Agreements

GST is accounted for in the taxable period that includes the date on which the hire purchase agreement was entered into.

If the hire purchase agreement is signed on or before the 30 September 2010 the GST rate is 12.5%

If after on or after the 1 October 2010 the GST rate is 15%

Lay-Bys

GST is accounted for in the taxable period that includes the date that ownership of the goods pass, which will generally be when the final payment is made

If the final payment is made on or before the 30 September 2010 the GST is 12.5%

If the final payment is made on the 1 October 2010 or after then the GST is 15%

This is a good opportunity for you to contact your lay-by customers and encourage them to pay the total owed now! Saves them 2.5% on the whole purchase price and gives you some cash flow.

Rental Or Hire Agreements

The total GST amount needs to be accounted for in the taxable period that includes whichever is the earlier of when the date the payment is due or the payment is received for each installment.

For a rental installment on commercial premises this will mean if the payment is due or received:

On and before 30 September - 12.5%

On and after 1 October GST - 15%

Double check with your own lease agreements and plan accordingly.

Certain Exemptions

Business’ such as insurers and financial leasing companies, who supply goods or services under contractual terms and receive periodic payments will be able to lock in the GST at 12.5% for contracts entered before the 1 October although payments are not received or due until after 1 October.

Some of these changes have been approved by Cabinet and some are still under discussion. Check the IRD website for updates.

Perpetual Invoices

It is common practice for perpetual invoices to be issued in the case of continuous supplies i.e. commercial property leases. Suppliers typically issue a tax invoice that covers the entire year or longer showing the due dates for payments. If you are the supplier, you must issue replacement invoices for payments due on or after the 1 October to reflect the higher 15% GST rate.

Change of Use Adjustments

For GST purposes a supply is deemed to occur when there is a change of use and an output tax or input tax adjustment must be made accordingly

The GST legislation has been amended to allow a person who identifies items that have changed to business use before the 1 October 2010 and to apply a rate of 12.5% to a one-off adjustment.

Similarly when output tax is required to be paid as a result of the change of use, the legislation gives registered persons the option of identifying items that changed to private use before the 1 October 2010 and applying the rate of 12.5% to one off adjustments even if the adjustment is made after 1 October 2010.

Test Your System

It is recommended as a precaution you should check your GST return for the October and/or November period very carefully to check that your return is correct.

Do you need further assistance? If so call your accounting professional NOW and book some time in. These people will be extra busy over the next few weeks so book in early.

Believe it or not there are still other things to do and prepare for. Don’t forget that PAYE rates are changing too. The check list below will help ensure you get though from Groan, Sweat & Tears to Gaining Sweet Triumph! Good luck!

Check List - GST

• Are my books up to date for Sept. 30th
• Is my accounting software upgraded to handle the GST changes
• Have I finished writing off any bad debts
• Have my staff been fully trained re: quotes and pricing
• Any automatic payments, recurring transactions, memorised transactions, etc., have been changed appropriately
• Items’ prices have been reviewed, adjusted and communicated to customers
• All marketing material, website info, and communications out are changed - check your ads!!
• Any work in progress or outstanding orders are reviewed and either invoiced now or communicated to customer they will be invoiced after Oct 1st @ 15%

Check List - Payroll

• Ensure your software is up to date
• If calculating manually be sure to re-calculate with new rates for pays ending after October 1st
• Review standard contracts to ensure changes are reflected, i.e. FBT, superannuation
  

GST Websites

IRD

http://www.ird.govt.nz/changes/gst/?id=homepage

http://www.ird.govt.nz/changes/gst/businesses/supply/

http://www.gstadvisory.govt.nz/

IRD - PAYE Calculator

http://www.ird.govt.nz/calculators/tool-name/tools-p/calculator-paye.html?id=homepage

MYOB

http://myob.co.nz/business/gst-change-2010-1258091530373

Xero

http://help.xero.com/#GSTandYou