IRD GST rate announcement

IRD GST rate announcement

For immediate release.

As we face the harsh reality of the 1 October GST increase to 15 percent many are realising this is not a modest increase and the issues are actually more complex than anyone first imagined.

The Government today issued another round of proposed changes to the GST Act that will help ease this pain, or to quote Revenue Minister Peter Dunne "Govt Smoothes the way for GST rate transition."

These measures are a credit to taxpayers who have got into the detail and consulted with the GST advisory panel and the Revenue Minister to try and ensure the GST increase is not bringing about consequences that are adversely hard.

Those who will benefit include private training establishments, those with annual contracts, such as gym memberships, those with lay-by sales, insurance contracts or finance leases.

For example with Finance leases those entered into before 1 October 2010 for a maximum of five years now have an option to continue to account for GST at 12.5%.

Those with lay-by sales like Christmas club memberships will be happy, as, providing you signed up before budget night (20 May 2010) suppliers can elect to pay GST at 12.5% in respect of payments made prior to 1 October. Previously because the GST liability did not arise until the goods were supplied, anyone with goods on lay-by after 1 October would have been subjected to the 15% rate.

Private Training Establishments will also be relieved as many use a trust arrangement with fees being released progressively throughout the year to the education provider. This means that the fees released after 1 October would be subject to the 15% rate even through it would, in most cases, be impractical to go back to the students to get more money. The PTE's now have a choice of making an up-front adjustment in their 30 September return to ensure they pay the maximum rate of 12.5%.

The main issue is the requirement for insurers (and other suppliers) to pay GST up front in full before 1 Oct to take advantage of the 12.5% rate. This rule does not however apply for those who have finance leases.

These, and other measures are a sign the Government is listening and the GST Advisory Panel Chaired by Frank Owen, along with Revenue Minister Peter Dunne who are working hard to ensure the change is as fair as possible.

The wake-up call is that taxpayers cannot assume GST is simple. Even these measures which have been designed to ease the pain have a potential cost.

Taxpayers need to ensure they are on top of the real cost benefit if they are opting to take advantage of using the 12.5% rate and this involves paying GST up-front on the 30 of September. Unless of course you want to assist the Government in their campaign to reduce the deficit by paying GST in advance.

Those who are not happy with these measures can still have their say, but be quick as the submissions on the bill close on 16 August.

Joanna Doolan is a Tax Partner with Ernst & Young

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