Be sure of your ground when GST rises

On October 1, GST will increase by 2.5 per cent to 15 per cent. Tauranga-based tax expert Mark Thomas explains:
IN LESS than a month, the biggest change in GST for over 20 years will take effect in New Zealand. As this means the GST rate will increase to 15 per cent on "supplies made on or after 1 October 2010", you should be considering how you will pass on the increase to your clients and whether your systems and processes are capable of the transition to the new GST rate.
As a general rule the GST increase has not changed how we account for GST, just the amount of GST that will be payable.
Generally for GST purposes, a supply is not considered to be made when the supplier performs the service or delivers the goods.
But instead the supply is made when the supplier issues an invoice for the goods or service, or receives a payment/deposit or any other payment for them.
Any GST liability arises at this point with the rate being 12.5 per cent before October 1, 2010 and 15 per cent on or after that date. In most cases it is clear how this rule will apply. For example:
If the supplier performs and invoices a service before October 1, the current 12.5 per cent GST rate will apply to it. The invoice is issued before October 1, so the supply is made before then. If the supplier performs a service or sells goods before October 1, but only issues the invoice (and has not received payment) after October 1, the supplier will have to account for output GST at the new 15 per cent GST rate. The invoice is issued and all payments are made on or after October 1, so the supply is considered to made on or after October 1.
If you are receiving progress payments the rules alter in that the GST becomes due in the earliest period that payment is due, received or an invoice issued.
Another area to be considered is your IT system(s).
It is vital that you have clear understanding of how your IT system deals with GST. From our discussions with clients it has become clear that they are finding that their IT systems may not cope with the rate change. It is vital to sort this out now.
Most businesses will need to consider how their systems will handle the transactions that are outside the norm. This may include the impact on multiple/successive suppliers; buyer created tax invoices; agency agreements; reverse charge transactions; and land transactions.
Businesses will also need to consider that all advertising, websites, brochures and other documents displaying prices will need to be updated to reflect post-October 1 prices. Stores displaying shelf prices will be need to change it manually.
In addition, where prices are going to rise, thought will need to be given to how this price rise is communicated to customers. Particular care will need to be taken with contracts entered into prior to October 1 that involve a periodic or successive supply of goods or services. Examples may include motor vehicle leases and residential construction contracts (where payment is made by way of instalments). In situations where a consumer will be expecting a GST inclusive price, careful thought will need to be given to whether the increase in GST is passed on to customers and, if so, how this is communicated.
Businesses have only a short period of time to consider the impact of the GST rate increase and make sure their systems and processes are able to efficiently and correctly transition to the new rate of GST.
You should discuss this with your tax advisers prior to October 1 to ensure that you are prepared for the GST increase well before this deadline.
Deidre Kite is a tax manager in KPMG Tauranga.