This week we look at a recent Government change to the GST legislation, a challenge to two of the issues raised last week plus some more transactions and how GST changes will affect those transactions.
Government Change
During the week the Government relaxed its stand to transactions, which were completed in September but not invoiced till October. The original intention was that all invoices raised after the 1 October would have to be at 15.0%. The change is now that come the 1st October 2010, you can still invoice at 12.5% for work completed in September, but the extension only applies to 11th October 2010.
A Challenge !!!!!
A client raised two issues to last weeks newsletter, the first of these related in part to the above comment about transactions having to be invoiced at 15.0% come 1st October 2010. However, the argument centred around progressive payments in that his belief was that if you received a progressive payment on the 25th September 2010 that would have GST at 12.5% and if you received the final payment on the 5th October 2010 that would also be at 12.5%. The Government change aside, the right to charge the higher GST is covered by section 78(2) of the GST Act 1985, which says that even though a contract may have been for a fixed price, this part of the Act allows suppliers to increase their price to reflect a change in the GST rate and GST must be charged at the higher price.
The second issue centred around insurance, in that if you van was broken into on the 27th August 2010, claim lodged on the 2nd September 2010 and duly settled on the 13th October 2010, the amount of GST to return on the claim would be 12.5% not 15.0%. The law on GST claims paid by insurance companies is precise, in that the GST Act says that time of supply is the day on which the payment is received from the insurance company, no matter when the claim happened or was entered into, so in that particular case GST would have to be returned at 15.0%.
Looking at some other forms of transactions ….
Baron has entered into a contract with Anthony’s building company, to build a new family home. The first three instalments have been paid to Anthony’s company prior to 30th September 2010, leaving only the last instalment (lets assume $28,000) to be paid on 28th October, plus there are retentions of around $5,000 to be paid in January 2011. What rate of GST will the next instalment and retentions be paid at?
The GST rate will be 15.0% and will apply to the October 2010 and January 2011 instalments, even though the contract may have been for a fixed price sum.
Karen runs a gym, where a number of members pay in advance for the next quarter, the next quarter, starts in October, some members pay prior to 30th September 2010 for services they will receive from October to March, what will be the GST rate?
Clearly the time of supply is the payment, so those payments that happen prior to 30th September will be at 12.5%.
Nici also runs a gym, where she has the philosophy that it is better for members to have the benefit and so she charges them in arrears. Her quarter ends 30 September and members pay October / November for that quarter. What GST rate will they pay?
The same rules apply in terms of payment and so, because payment is after the 30 September 2010, they will have to pay at 15.0%.
Tracey sells a jacket to Frances for $550.00 on the 7th September 2010. Frances elects to put the jacket on Hire Purchase and the agreement is for 36 monthly payments of $23.00, which comes to $828.00. What rate will the GST be charged at?
Time of supply occurs at the time the agreement is entered into. All hire purchase sales should be included in the taxable period covering the date the hire purchase agreement is entered into regardless of the accounting basis that is used, therefore the agreement would be entered into in the August / September return and GST would be at 12.5%.
Next week we will talk about Gift vouchers, local body rates and a supply of goods under an agreement to hire e.g. photocopier
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