Are you ready for October 1?

Are you ready for all the tax changes?
There are several tax changes looming that will come into effect from October 1, most of the recent emphasis has been on the GST rate change but in this article we would also like to remind you of some of the other changes and give you some of the practical impacts.
Probably the easiest change to deal with will be the decrease in the individual tax rates from 1 October 2010.
This decrease was timed to coincide with the GST rate increase to help to compensate for the anticipated increase in their cost of living.
If you are an employer and use payroll software, your software provider will have issued an update that will handle the new tax rates for you, however if you use a manual system the IRD have issued new PAYE tables and updated the PAYE calculators on their website.
These new rates must be used for pay periods that end on or after 1 October but if the pay period ends before 1 October and only the pay day falls on or after 1 October you should use the old PAYE tables. What has not been widely publicised is that the earner levies that are included in the PAYE tables will increase from $2 per $100 to $2.04 per $100 to allow for the GST uplift. The tax rates for individuals are:
The top marginal tax rate will be 33 per cent from October 1, so the redundancy tax credit has been removed, however care will now need to be exercised when paying out any redundancy payments or lump sums as there maybe a flow-on effect of additional tax to pay for the employee due to the composite tax rate for the year.
GST changes in our last article concentrated on the transitional rules and the adjustments that are required, here we plan to look at how the rate increase is calculated. Prices can be increased to take into account the increase in the GST rate from 12.5 per cent to 15 per cent from 1 October, unless a contract expressly restricts this.
So how do you actually do the calculations? The new rate of 15 per cent is not an easy one to work with as the tax fraction of a GST inclusive price goes from the 1/9th to 3/23, so keep those calculators handy. Where a GST inclusive price is to be increased, the price is increased by 2.22 per cent not 2.5 per cent, so to increase GST inclusive price from $9.99 the calculation is $9.99 multiplied by 2.22 per cent = $0.2217 now add this to the $9.99 to arrive at the new GST inclusive price of $10.21.
You need to determine whether to increase the prices as part of your overall sales and pricing strategies or whether you will absorb the part or all of the impact of the GST rate increase and thus affect your profit margins.
If you are mainly dealing with GST registered customers the GST rate increase is less of a factor as they will generally have the ability to claim the GST back.
The last point for today is that the implementation date for the GST rate change is nearly upon us so you need to make sure that you are prepared. Consumers - be aware that many businesses may close early on September 30 or open late on October 1 to allow time to carry out price changes.
Disclaimer: No liability is assumed by Staples Rodway Tauranga Ltd for any losses suffered by any person relying directly or indirectly upon the article above. It is recommended that you consult your advisor before acting upon this information.
Gail Thomson is with Chartered Accountants, Staples Rodway Tauranga. She can be contacted by email: gail.thomson@staplestga.co.nz or phone: (07) 578 2989.