1.What is the GST rate increasing to, and when does it take effect?
2.Which GST rate will apply?
- The new 15% GST rate will generally apply to supplies made by GST registered persons on or after 1 October 2010.
- The time of supply needs to be assessed, in order to determine the correct rate of GST.
- In most instances, the time of supply will be the earlier of the time an invoice is issued, or a payment is made, in relation to the supply of goods or services.
- If the time of supply occurs before 1 October 2010, the 12.5% GST rate is to be used.
- If the time of supply occurs on or after 1 October 2010, the 15% GST rate is to be used.
- In terms of supplies made in September 2010 but invoiced in October 2010 - technically invoices relating to supplies made in September 2010 invoiced at the 12.5% GST rate, should be invoiced by 11 October 2010, provided:
- The services were provided in full prior to 1 October 2010, and
- The invoice is dated on or before 30 September 2010.
3.What are the transitional provisions?
- The new 15% GST rate is to be applied for GST returns commencing from 1 October 2010.
- If a GST return period spans 1 October 2010, then a special one – off transitional GST return is required, consisting of the following two parts:
- The new 15% GST rate for the period on and after 1 October 2010 (Part 2).
- If you are in an invoice basis, then no further adjustments should be required.
- Where you are on a payments (ie. cash) basis however, a comprehensive debtors and creditors list needs to be prepared, and the following adjustment made:
- Take the net difference between the debtors and creditors at 30 September 2010, and divide by 51.75
- The reason for this adjustment is that under the payments basis:
- All payments received on or after 1 October 2010 will be returned as 15% output tax, even if the invoice issued by taxpayer and which is being paid had GST at 12.5%
4.How is the new rate of GST calculated?
- The GST component for the 15% rate is calculated by either:
- Multiplying the GST inclusive amount by the fraction of 3 divided by 23 (3/23), or
- Dividing the GST inclusive amount by 7.66 recurring.
5.What areas require specific review?
- Retentions, finance leases, lay buys, hire purchase agreements, government grants, etc
- Please discuss specific areas of concern directly with a Kendons representative.
6.What work is required in relation to my accounting system?
- The increase in the GST to 15% from 1 October 2010, needs to be done in a careful and structured manner with the involvement of one of the Kendons team.
- For example one risk, if the process is not handled correctly, is that all historical invoices in the system are incorrectly changed to the 15% GST rate (ie. including those prior to 1 October 2010).
- For our clients on MYOB:
- The easiest way to handle the rate change is to upgrade to the latest MYOB version (Accounting Right Standard V19.5, Accounting Right PremierV19.5, Cashbook V8 or Business Basis V1.5)
- The software upgrade can be ordered now or if clients subscribe to a MYOB support plan they will be sent the upgrade for free.
- Note that the previous 12.5% rate will still be required for some transactions after 1 October 2010 (such as credit notes to customers or from suppliers for the return of goods invoiced before 1 October 2010), and the GST code in these instances will need to be manually over-ridden.
- Note the similar principles will likely apply in relation to upgrading other software packages (including Quick Books, Xero, Banklink etc).
- Kendons can off course assist with both the software upgrade installation and the subsequent review of the September 2010 transitional GST reutrn.
7.What assistance can Kendons provide?
- Kendons is available at any time to discuss any issues – in fact we will attempt to directly make contact with all our clients to discuss their particular requirements, including upgrading their existing accounting systems to handle the GST change.
- Given that the GST transitional provisions are fairly complex, we suggest that if you have not heard from us over the next few weeks, then you contact us direct.
- We can also review your GST returns and assessments for the periods immediately following 1 October 2010, to ensure that your GST has been correctly accounted for over the transitional period.