Govt enacts changes to smooth GST rate transition

Monday, 9 August 2010

The government announced today that it will enact recommendations made by the GST Advisory Panel that will deal with a range of difficulties arising in the transition to the 15% GST rate.

The GST Advisory Panel chair Frank Owen says the recommendations follow substantial consultation with many businesses up and down the country.

He says businesses highlighted the substantial compliance costs in some cases of making systems, issues arose where contracts involved periodic supplies that span the 1 October date and there were also gaps between today's business practices and legislation that is now more than 20 years old and other issues of simple inconsistency or unfairness.

He says the detail of the measures released today should give businesses a reasonable level of comfort that the worst of the concerns submitted to the Panel will be addressed.

PricewaterhouseCoopers GST partner Eugen Trombitas says the newly announced GST transitional rules are the final piece of the package businesses have been waiting for and provide practical clarity to a wide range of industries.

"It is now up to businesses to assess the commercial and systems impact of the transitional rules and then take appropriate action."

The new GST transitional rules are elective and will ensure:

Businesses (such as general insurers and leasing companies) who supply goods or services under contractual terms and receive periodic payments, will be able to lock in GST at 12.5% for contracts entered before 1 October, even though payments are not received or due until after 1 October, provided certain criteria are met. These suppliers will not have to increase their prices under existing contracts, or issue updated tax invoices to allow their GST-registered customers to claim GST deductions

Businesses, who currently account for GST when an invoice is issued, even though they make successive supplies and therefore should account for GST when each payment becomes due or is received, will be able to continue to account for GST at 12.5% for an invoice dated on or before 30 September (issued by 11 October) where payment is due within 60 days of the invoice date

Insurers, when dealing with insurance claims after 1 October and under pre-1 October contracts, will not be out of pocket for the difference in GST when receiving recovery income via subrogation payments

Businesses, when giving credits or replacing goods, reversing the entire original tax invoice and issuing a new one, will be able to issue the new tax invoice at 12.5% post 1 October if the credit relates to a supply which took place before the rate increase. This will ensure suppliers do not suffer the burden of extra GST when the new tax invoice is issued after 1 October

Businesses generating invoices for September supplies which are not posted until 11 October (where payment is due within 60 days of the invoice date),may account for GST at 12.5%.

Suppliers, who have sold goods and products on lay-by sales, will be allowed to account for GST at 12.5% until 30 September. Any amount paid from 1 October will be accounted for at 15%

Private training establishments (such as private language schools and hospitality training academies) will be allowed to make an adjustment in their September GST return to give them a credit for the additional GST payable from 1 October on course fees.

The changes will be included in a Supplementary Order Paper to the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Bill 2009, which is reaching its final parliamentary stages.

Dunne says other GST and income tax matters will also be dealt with by the same process.

The public have until Monday, 16 August, to further comment on the draft legislation.

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