Act Now on Just Released GST Transitional Rules

PricewaterhouseCoopers media release:
10 August, 2010

Act Now on Just Released GST Transitional Rules

The countdown to 15% GST from 1 October, 2010 is on. It is more than ever essential businesses ensure they have the right systems and processes in place to be well prepared, remove any confusion and avoid unnecessary costs.

PricewaterhouseCoopers GST partner, Mr Eugen Trombitas, says “although some businesses have already made commercial, pricing and systems decisions ahead of 1 October, 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.

“The Government has listened to New Zealanders’ concerns about potential problems and acted decisively to better align the GST time of supply rules with business reality. These rules determine what rate of GST applies. It is now up to businesses to assess the commercial and systems impact of the transitional rules and then take appropriate action.”

As announced today by the Government, 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 Government’s intention is to include the GST transitional rules to the Goods and Services Act 1985 by way of a supplementary order paper to the Taxation Bill. Draft legislation is now available for consultation with Inland Revenue officials up until 16 August, 2010.

Mr Trombitas concludes “New Zealander consumers and businesses, such as retailers, utilities, insurance companies and leasing companies, are all affected by the GST rate increase. Managing and implementing the GST timing rules will be essential to a successful GST rate transition – and there is a need to move swiftly to avoid unnecessary problems.”
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Notes to the editors: PricewaterhouseCoopers’ GST Direct publication is available on our website (www.pwc.com/nz) and provides more detailed comments on the finer aspects of the proposed new GST transitional rules.

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