Articles

GST Changes 1 October 2010

July 30th, 2010

1 October 2010 is going to see a change to how you do business thanks to the changes to GST with it going from 12.5% to 15% – are you ready?

Here are some things to think about:

How do I calculate the GST component of price?

For the 12.5% rate, the GST component of a GST-inclusive amount can be calculated by dividing by 9.

For the 15% rate, the GST component will need to be calculated by either multiplying the GST-inclusive amount by the fraction – multiply by 3 then divide by 23 ( x3 /23)

Instead of using the 3/23 fraction you can also divide the GST-exclusive amount by 7.6666 recurring to calculate the GST component.

To find out the GST component of a GST-exclusive amount, multiply the GST-exclusive amount by 15%.
Example
Value of goods $1,500.00
GST at 15% $225.00
Total price $1,725.00
To calculate the GST component of a GST-inclusive amount, multiply the GST-inclusive figure by 3, then divide by 23.
Using the example above:
Step 1: $1,725.00 multiplied by 3 is $5,175
Step 2: $5,175 divided by 23 is $225.00 (the amount of GST).

Note
If you use the recurring figure instead of the fraction method it can sometimes give you an incorrect answer depending on how many decimal points you use, for example:

  • $1,725.00 / 7.66 is $225.20 – this is incorrect
  • $1,725.00 / 7.666 is $225.02 – this is incorrect
  • $1,725.00 / 7.6666 recurring = $225.00 – this is correct

Using the fraction method (multiply by 3 and then dividing by 23) will always provide you with an accurate answer.

Time of supply rules
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.

To add GST to an exclusive amount multiply by 1.15
$1500 x 1.15 = $1725
To go from inclusive to exclusive amount multiply by .869565
$1725 x .869565 = $1499.999 (Not as 100% accurate as 3/23 because of the recurring value)

What else do I need to think about for GST changes?

  • Change the setting in your stock control/general ledger/other computer systems
  • Do you need to replace shelf labels or pricing in store
  • Does your website need changing
  • Do you have printed price lists that need changing
  • Explain to staff about the changes so they can communicate with clients if needed
  • Are you on a payment or invoice basis which may affect when GST is triggered
  • Is there an opportunity to purchase some stock or product before the GST increases

The information above is not intended to replace the information provided by your accountant or other financial advisor.

The information above is from the IRD website – www.ird.govt.nz/budget/gst/businesses

As we get closer to 1 October we will update you with further information

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