GST Changes - October 2010

So the next hurdle we need to start thinking about is the GST increase from 12.5% to 15.0% on 1 October 2010.

When GST increased from 10.0% to 12.5% in 1989, the market picked up heaps of momentum pre the increase but once the increase was through the market died again and so as to try and insulate ourselves against the dip as much as possible, one thought we had was do we want to hold the GST increase off until after Christmas 2010. This will mean the extra 2.5% will come out of our gross margin but in terms of building up goodwill with our customers and maintaining a good level of business leading up to Christmas, could this be an option for us?

That issue aside, some of the practical issues we will need to address with a GST increase are:

- If you are a retailer or a wholesaler or stock will have to be repriced.
- What happens if you are a bar?
- Can your current accounting system cope with the GST increase? If you use an online accounting system like Xero, you will have to do nothing, the change will be made for you.
- Most customers will want to be billed for services pre the GST increase, but if the time of supply is not till after the 1 October 2010, the IRD might have an interest in some of these transactions.
- You will have to be careful that the transactions that happen pre 1 October 2010, that they are billed out at 12.5% will have to be adjusted up to 15% when paid the money you are accounting for is 15.0% even if not paid till after 1st October 2010.
- What about transactions on Lay by? Clients selling goods on Lay by may be paying GST on each installment as it is received. However, the IRD has indicated that GST applies on the date the final payment is made. Therefore, if a lay-by agreement straddles GST change over date, the payments made before the 1 October will be insufficient.
- GST on a hire purchase agreement will operate on the agreement date.