### 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