Marketing and Sales

14 Sep

Some clients may experience a spike in sales prior to 1 October.  This was the case for many businesses back in 1989 in advance of the GST rate increasing from 10% to 12.5%.
Conversely, demand may subsequently dip past 1 October.
Businesses need to plan how they can maximize their sales between now and October, possibly even by invoicing customers in advance to accelerate the time of supply so that the 12.5% rate applies rather than the 15% rate.

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Pricing

14 Sep

How will you deal with the GST rate increase as part of your overall sales and pricing strategy?  Will you pass on all of the GST increase, or will you fully or partially absorb the GST?

Yet again, will you take this opportunity to increase your price?

At the end of the day your pricing and therefore sales strategy will depend on the composition of your customers (are they GST registered or are they end users who cannot reclaim GST?), demand for your goods and services, not to mention your competitors’ reactions to the same issues.

You’ll need to update all of your marketing and sales collateral and that includes any web pages.

And here’s one of the big issues for retailers – you’ll need a plan for updating shelf and catalogue prices.

Quite a big job!

When You Need to Make the GST Rate Change Adjustment

12 Sep

The GST rate change adjustment will ensure goods and services bought or sold on or before 30 September 2010 are charged and claimed at the rate of 12.5%.

You need to make the adjustment if you use the:

• payments or the hybrid basis to account for GST
• invoice basis and have purchased secondhand goods from a non-GST-registered person for your business.

You’ll need to make an adjustment if you have income and expenses from before 1 October 2010 and invoices were issued and GST charged at 12.5%, but you have not received or made any payments.

If you make a sale on or before 30 September 2010 when you use the payments accounting basis

You’ll charge your customer 12.5% GST.

If you receive the payment on or after 1 October you’ll account for it in a later GST return at 15%. This means you’ll pay 2.5% more GST than you receive.

We’ll give you a 2.5% credit on your GST rate change adjustment that you’ll complete as part of your GST return that includes 30 September 2010.

If you make a purchase on or before 30 September 2010 when you use the payments or hybrid accounting basis
You’ll be charged 12.5% GST.

If you make the payment on or after 1 October you’ll account for it in a later GST return at 15%. This means you’ll have accounted for 2.5% more GST than you’ve paid.
You’ll need to pay us 2.5% on your GST rate change adjustment that you’ll complete as part of your GST return that covers 30 September 2010.
The adjustment will allow you to calculate the correct amount of GST so the correct amount is returned.
If you make a purchase of secondhand goods on or before 30 September 2010 using the invoice accounting basis
You’ll be charged 12.5% GST.
You’ll only need to make the adjustment if you have purchased secondhand goods from a non-GST-registered person for your business.
If you make the payment on or after 1 October you’ll account for it in a later GST return at 15%. This means you’ll have accounted for 2.5% more GST than you’ve paid.
You’ll need to pay us 2.5% on your GST rate change adjustment that you’ll complete as part of your GST return that covers 30 September 2010.
The adjustment will allow you to calculate the correct amount of GST so the correct amount is returned.

Cancelling your GST Registration

9 Sep

If you need to cancel your GST registration but still own assets which you intend to retain after you have cancelled your registration, you’ll need to account for GST on those assets as part of your GST cancellation.

You’ll need to account for GST at the rate of 12.5% of the open market value up until 30 September. However from 1 October onwards any assets retained at the point of GST registration cancellation will need to be accounted for at the rate of 15%.

Time of supply rules and GST on imports

8 Sep

When there is a GST rate change (in this case from 12.5% to 15%) the general time of supply rule applies for most transactions. This means that a supply is considered to take place at either:

• the time an invoice is issued, or
• the time any payment is received by the supplier

depending on which happens first.

GST on imports
GST on imports is affected by the increase in GST.

GST Invoices and Receipts

7 Sep

From 1 October you’ll need to make sure you issue invoices and account for GST at 15%.

If you claim input tax deductions, you’ll need to ensure the correct amount of GST is shown on the tax invoice used as the basis for your claim.

It’s likely that you’ll receive some tax invoices for goods and services after 1 October, which will be at the old GST rate of 12.5%. Your accounts payable system will need to be able to account for GST at 12.5% and not 15% on these tax invoices.

If you receive a tax invoice at 12.5% after you’ve closed off your GST return, you can make a late claim for this expense.

Price increases on existing agreements or contracts to reflect GST rate increase

The GST Act allows a supplier to increase their prices on existing agreements or contracts to compensate for the associated increase in GST (i.e. 2.5%), for example:
•    car parking contracts
•    gym contracts
•    laybys

New GST Transitional Return

5 Sep

The GST transitional return is divided into two parts to account for the change in the GST rate.

Part 1 for supplies at the GST rate of 12.5%

In Part 1 you record your sales and income, and purchases and expenses, plus any adjustments (including the rate change adjustment), from the start of your return period until 30 September 2010.

The GST calculation is at 12.5%, meaning your GST-inclusive sales and income, and purchases and expenses will be divided by nine (9) to find the GST component.

Part 2 for supplies at the new GST rate of 15%
In Part 2 you record your sales and income, purchases and expenses, and any adjustments from 1 October 2010 until the end of your return period.

The GST calculation is at the new GST rate of 15%, so your GST-inclusive sales and income, and purchases and expenses will be calculated by multiplying by 3 then dividing by 23 to find the GST component.

You’ll need to add together the:
•    total GST collected on sales and income from Parts 1 and 2, and
•    any GST credit for purchases and expenses from Parts 1 and 2.

The difference between these two amounts will determine whether you have GST to pay, or a GST refund.

Completing your GST transitional return
You will need to:
•    separate any goods and services you have purchased and sold before and after the rate change
•    record these supplies on the appropriate part of the GST transitional return
•    complete and file your GST transitional return and make any payment by the return and payment due date.

Your Accounting System

31 Aug

The impact this change will have on your business may depend on what accounting system you are running. Being ahead of the game and knowing what to do will be the key as billing systems, purchasing systems, expense systems and accounting systems will be affected.

Some of the main issues may be:

  • Will your accounting system cope with 2 different GST rates at the same time?
  • Does your accounting software need to be updated?
  • Maybe it’s time for a complete health check of your GST systems?
  • Can your accounting software issue tax invoices, debit and credit rates at both old and new rates?
  • What changes will be required to POS and till technology?
  • When will GST rate compliant software updates be sent to you from your suppliers and how will you test those updates to make sure the new rates calculate correctly?
  • Do you have any internal excel spreadsheets or other templates where the GST rate is ‘hard wired’ in?  If so, each of these will need a careful review.

We think Xero is the answer, check them out www.xero.com

GST Periods Starting 1 October 2010

27 Aug

GST periods starting from 1 October 2010

You’ll need to use the new 15% rate from your next return onwards, if:

•    you file your GST returns monthly, or

•    you are a two or six-monthly filer that has a return period ending 30 September 2010.

GST periods that span 1 October 2010

If you are due to file a:

•    two-monthly return with the period ending 31 October 2010, or

•    six-monthly return with the period ending:

o    31 October 2010

o    30 November 2010

o    31 December 2010

o    31 January 2011

o    28 February 2011

you’ll need to use the:

•    12.5% rate for the period up to and including 30 September 2010, and

•    15% rate for the period on and after 1 October 2010.

The IRD will be sending you new returns that will help you through the transitional period. You’ll then go back to using your normal GST return. The returns will be printed with a red stripe to distinguish them from normal GST returns.

There’s a Fraction….

10 Aug

The speculation is over.  The rate of GST will be increased from 12.5% to 15% as of 1 October 2010.

The GST rate increase is consistent with Government’s commitment to a fairer tax system and a move away from personal and company tax rates that it considers harmful to economic growth.

Over the next three months (and beyond) we’ll be working hard to guide our clients through the various changes that need to be implemented as a result of the GST rate increase, some of them complex.

As always, taxation changes do present opportunities along with the usual challenges, so now is the time to consider those opportunities along with the raft of administrative changes you’ll need to consider.

New Tax Fraction
At the moment, with a GST rate of 12.5%, calculating the GST component of a GST inclusive price is as simple as dividing by 9.

Not so simple after 1 October.  When GST increases to 15% you’ll need to multiply by 3 then divide by 23.

For example: Let’s assume the price of an item is $1,000 plus GST, so that’s $1,150 including GST.  The GST component is $1,150 x 3 ÷ 23 = $150.

Have a practice and enjoy!