Supply to an associated person

9(2)(a)

Periodic or progressive supplies

Supply of goods under an agreement to hire (but not including a Hire Purchase Agreement)

9(3)(a)

Supply of services under an enactment or agreement that provides for periodic payments

9(3)(a)

Progressive or periodic supply of goods under an enactment or agreement that provides for instalment or periodic payments

9(3)(aa)(i)

Supply of goods and services in a construction or engineering project that provides for instalment or periodic payments

9(3)(aa)(ii)

Hire Purchase Agreements

9(3)(b)

Special sales

Door to door sales

9(2)(b)

Layby sales

9(2)(c)

Sales where price is not determined at the time of delivery

9(6)

Betting and gambling

Racing betting or sports betting conducted by TAB

9(2)(d)

Gambling under the Gambling Act 2003, other than a New Zealand lottery or gambling on a gaming machine

9(2)(e)

Coin/token operated machines

9(2)(f)

Gambling in a casino venue

9(2)(g)

Supplies made in exchange for a token, stamp or voucher

9(2A) and (2B)

Public and local authorities

Supplies by public authorities

9(7)

Local Authority Rates

9(8)

Loyalty programmes

9(9)

Payments by instalments: I have entered into a contract with a building company to build our new family home. The first three instalments have been paid to the building company so that there is the last instalment (of $28,000) to be paid at completion on or about 25 October 2010, plus the retentions (of $5000) in January 2011.

Will the total cost of $220,000 be increased because of the GST rate increase?

The new GST rate of 15 percent will apply to the October 2010 instalment and the retentions. The building company is entitled to increase the price only in relation to the instalments (and retentions) that are payable after 1 October 2010. If the building company increases the price, the new payments would be:

This is likely to still be the case even where the building contract may have been for a "fixed price". Generally, section 78(2) of the GST Act allows suppliers to increase their prices to take account of an increase in the rate of GST - unless the contract expressly provides that such an increase cannot happen.

Stamps, Tokens, or Vouchers.

The usual time of supply rule means that a supplier should treat stamps, tokens or vouchers as a supply for GST purposes at the time a customer purchases them, not when the vouchers are redeemed.

Example: Peter buys a $50 voucher from Musikco in Wellington on 15 September and gives this as a gift to Jonathan in Auckland. Jonathan buys CDs with the voucher at Music Time in Auckland on 1 November. The supply takes place when Peter buys the voucher and Musikco accounts for the sale at a GST rate of 12.5% in the return which covers the September period. When Jonathan redeems the voucher, there is no underlying supply at this stage and the goods should be supplied free of GST (s 5(11F)).

However, there are circumstances where the issuer of the voucher and the supplier of the goods or services may agree to recognise the supply on redemption of the voucher.

Example: Musikco stores nationwide, which are independently owned but affiliated, agree that a supply takes place when a store reimburses another store for redeeming a voucher, rather than when the voucher is sold. In this case, Music Time in the above example would account for the sale at the GST rate of 15% in the GST return that covers the November period.

Insurance claims: Claim payments received by a registered person from an Insurance Company under a contract of insurance are a taxable supply. What rate of GST is payable for claims made prior to 1 October but received after 1 October?

Time of supply is the day on which the payment is received from the insurance company. GST output tax is accounted for in the period of receipt of payment.

Example: Kevin, a registered person who operates a plumbing business, has tools stolen from his garage. Two months after the burglary on 15 October 2010 Kevin receives a payment from his insurance company in respect of his claim for the theft. GST is accounted for in the return which covers the October period at the new rate of 15%.

Professional services: I am a solicitor who charges my clients for my legal services every two months. If I have done work for a client in September 2010 and send an invoice in October 2010, can I use the 12.5 percent GST rate?

No - all invoices issued on or after 1 October 2010 are required to have the 15 percent GST rate. The solution to this is to ensure all invoices for services provided in September are issued in September.

Hire Purchase Agreements

Time of supply occurs at the time the agreement is entered into. All hire purchase sales should be included in the taxable period covering the date the hire purchase agreement is entered into, regardless of the accounting basis is used.

Example: Walter Wall sells a carpet on hire purchase to Homer Ohner on 7 June. The cash price is $550, which includes GST. The agreement is for 36 monthly payments of $23, totalling $828.

Walter accounts for the sale on the cash price of the goods of $550 in the GST period covering 7 June. Homer also claims GST input tax credits for his purchase on the cash price of the goods ($550) in the period covering 7 June. The difference of $278 is the finance charge, which is an exempt supply.

Registered person on a payments basis: I am a registered person and use the payments basis of accounting for GST.

I understand that I have to pay GST at 15% on any payments I receive on or after 1 October 2010 and that I will also claim an input tax adjustment of 15% on any payments I make after that date.

I also understand an adjustment is required to ensure supplies charged at the old rates are accounted for at those rates. Would you please explain the adjustments I will need to make on 30 September 2010.

The adjustment will mean that all income received after 1 October will be accounted for at the new rate even though you may have charged for that work at the old (12.5%) rate. However, you will also be allowed an input tax deduction based on the new rate, even though you may have only been charged 12.5% GST.

You will need to calculate the transitional adjustment on a special GST transitional adjustment form, which Inland Revenue will provide you.

The calculation requires you to calculate the value of your debtors and creditors on 30 September 2010. You then deduct the value of your debtors from your creditors and divide the difference by 51.75 (which is the difference between the old and new rates of GST).

If your debtors exceed your creditors, a GST credit will arise that can be used to offset GST payable. When your creditors exceed your debtors, GST is payable and is included in your GST return for the period covering 30 September 2010.

The calculation means that you will not have to continue to account for the income for work you have charged or expenses you have incurred at the old rate after 1 October 2010 when the new GST rate applies.

NOTE: if you are using the hybrid method of accounting for GST you will need to check the definition of "qualifying supplies".

Second hand goods: I am a registered person and use the invoice basis of accounting for GST. I purchased land for $350,000 from a person who is not registered on 15 September and I still owe $150,000 as at 30 September 2010.

How do I claim the second-hand goods input tax deduction?

You will need to make a similar adjustment to that set out above. You will make an adjustment on the unpaid portion (i.e. $150,000 / 51.75 = $2,898.55). This figure goes in the GST return for the period ended 30 September 2010. When you pay the $150,000 you will be able to claim an input tax deduction of 3/23rds of the amount paid.

Goods supplied under an agreement to hire that provides for periodic payment

Periodic payments and hire agreements are treated as a series of separate supplies for each period of the agreement. The time of supply is the date payment is due or received, whichever is earlier.

Persons on the invoice basis account for the supply in full in the period in which the earlier of these events occurs.

Payments basis customers account for tax at the rate applying when payment is received or made.

Example: Anna hired a piece of machinery from Mark on 1 June for six months. Mark advises that they will require monthly payments due on 1stth of each month. GST of 12.5% will apply to payments made in July, August and September. GST of 15% will apply on payments due on 1 October and 1 November.

If Anna decides to pay the monthly payments that would be due in October and November early - before 30 September, then GST of 12.5% will apply to those early payments. Mark will need to include those early payments in the GST return covering the period in which the early payment was made by Anna.

Local Authority Rates: Super City issue rates notices to their ratepayers in July each year. The rates notice gives ratepayers the option of making a payment for the full amount of the rates on the first instalment date - 20th October, or ratepayers can choose to make payment in four instalments for each quarter ending September 2010 (due 20th October), December 2010 (due 20th January), March 2011 (due 20th April) and June 2011 (due 20th July).

The instalment notices for the quarter ended 30 September 2010 are issued on 24th September. Payment will be due 20th October 2010. Super City has asked whether the GST on that instalment should include GST at 12.5%, or 15%.

The time of supply for rates is on the earlier of:

• the date of an instalment notice is issued; or
• the due date for payment, or
• the date when payment is received.

As the instalment notice is issued before 1 October 2010, the GST will be at 12.5%. The instalment notices issued for the ensuing quarters will include GST at 15%.

However, those residents who choose to pay the full amount of their rates in the first quarter (i.e. they do not choose the instalment option) will pay GST at 12.5%.

Periodic supplies: On 1 July 2010 Matt signs an agreement to lease a car park from Parking Co. The agreement requires Matt to pay a fee of $120 each month (inclusive of GST), payable on 20th of each month. A tax invoice was provided to Matt at the time he signed the agreement. The tax invoice requires Matt to pay a fee of $120 per month (inclusive of GST), payable on the 20th of each month.

Each monthly payment is a separate supply. The time of supply is the time each payment becomes due or is received, which ever is the earlier. Here, that would be the 20th of each month. The GST Act also allows a supplier to increase their price to provide for the increase in the rate of GST. In Matt’s case Parking Co may increase the monthly payments to $122.66 to reflect the increase in the GST rate.

Similar outcomes would apply to commercial leases and other similar commercial arrangements. For example, a monthly fee for the use of an electronic database, or a gym membership.

A plumber has asked what rate of GST should be charged on invoices issued prior to 1 October 2010, but for which payment will not be received until after 1 October.

All invoices issued prior to 1 October 2010 should have GST included at 12.5% - even if you do not expect to be paid until after that date.

If you account for GST using the payments basis you will need to have record of outstanding debtors and creditors as at 30 September 2010. You will make an adjustment so that you will not have to keep a track of income and expenses at different rates of GST. After 1 October you will pay GST at 15% for all payments received, and will also be able to claim GST at 15% on expenses paid after that date.

Information about how to make the necessary adjustment will be sent to you by Inland Revenue prior to 1 October.

The plumber also asked what rate of GST should be shown on work which was quoted using 12.5% GST, but will not be completed and charged until after 1 October.

Section 78(2) of the GST Act states that contracts or agreements entered into prior to a change in the rate of GST may be altered to take account of the rate change, unless the contract expressly provides that this provision is not to apply. This will mean that, unless the contract or agreement provides otherwise, even though a job may have been quoted at 12.5% GST, any work invoiced after the date of the rate change can be charged at the new GST rate.

A retailer has asked what rate of GST should be used on a credit note issued for goods that had been purchased before 30 September 2010, but returned after 1 October 2010.

The initial supply would have been made using a GST rate of 12.5%. Therefore, the credit note should use that same rate, or the customer will be refunded for more than they had paid for the goods.

Normally a credit note would be included in Box 11 of the GST return. However, as the amount of GST is not the [new] standard rate, the GST portion only of the credit note should be included as an adjustment to input tax and included with the adjustments at box 13.

Example: A fashion store sells a dress for $270 on 29 September. The sale is included in the return for the period ended 30 September. On 3 October the dress is returned and a credit is issued. As the credit note will be made using the old rate of GST (12.5%), the GST portion of the credit note (1/9th of $270 = $30) is included in Box 13 of the store’s GST return for the next GST period.

A hotel is providing facilities for a large conference to be held on November 2010. They will be invoicing their client in July, even though the conference will be in November, and have asked what rate of GST should apply.

Even though the invoice relates to a service that will be provided after 1 October 2010, the time of supply rule will be triggered at the time the invoice is issued (or any payment is received by the hotel). In this case, because the invoice will be issued before 30 September, the GST rate the hotel should include will be 12.5%. The hotel will include the supply in their GST return covering July 2010.

New tax fraction: What is the new tax fraction and how will it be calculated?

The new tax fraction (the tax rate divided by the sum of 100 plus the tax rate) will be 3/23. This fraction can be applied to the price of goods or services to see how much GST is included in the price. For example, if the cost of a fridge is $2,000 inclusive of GST, the GST included in the price will be $260.87.

($2,000 x 3) divided by 23

This will mean that 3/23 of all supplies made at the new rate will represent GST payable to the Inland Revenue, and 3/23rds of all supplies received by a registered person will represent GST that can be claimed back by the supplier.

Payments basis and hybrid basis taxpayers

The GST Act will require everyone on the payments or hybrid basis of accounting for GST to pay 3/23rds of all payments received in respect of taxable supplies after 30th September to the Inland Revenue Department as GST. Conversely they will be able to claim back 3/23rds of all payments made for taxable supplies after 30th September as input tax.

In some cases those supplies will have been made and invoiced before 30th September so will include GST at 12.5%. The will mean that in those cases more GST will be paid after 30th September than was invoiced, and more GST will be claimed back after 30th September than was charged.

This is compensated by a special adjustment required in the GST return which includes the 30th of September.

Example

Home town Plumbers Ltd have $13,500 owing to them on 30 September 2010. This was made up of sales $12,000 plus GST of $1,500.

They also owe $9,000 on the same date. This was made up of purchases $8,000 plus GST of $1,000.

When the company collects the $13,500 on say 15th October thy will account for GST at the new tax fraction of 3/23rds, or $1,760.87. They will pay $260.87 more GST than the company has collected.

When the company pays its creditors the $9,000, in say October, they will claim GST at the new tax fraction rate, 3/23rds, and will claim back $1,173.91. This is $173.91 more than the company paid.

The purpose of the special adjustment form is to compensate for this difference.

In Hometown Plumbers Ltd case thy will be in the following position:

This amount is claimed back as an adjustment in the return submitted on 30th September 2010.

Adjustment in the GST return which includes the 30th of September.

There will be a special adjustment form [GST 105] provided by the Inland Revenue Department to make the adjustment described above.

The form will require persons registered on the payments basis to provide the following information

If the amount in BOX A is larger than in BOX B the amount in BOX D represents GST payable in the return form for the period which includes 30th September. This figure is placed in 9 or 9A of your GST return.

If the amount in BOX B is larger than in BOX A the amount in BOX D represents GST which can be claimed back in the return form for the period which includes 30th September. This figure is placed in 13 or 13A of your GST return.

Example using Hometown Plumbers Ltd figures above.

The $86.96 is now entered in Box 13 or 13A of the GST return which includes 30th September. It will reduce the GST otherwise payable in that quarter by the amount of the adjustment.

What do I do if I am on the payments basis of accounting for GST but have not managed to get details of all my creditors owing on 30the September before I am due to file my GST return on 28th October 2010.

Where possible you should make every effort to obtain details. Where you are not able to do this, you can take advantage of a provision in the GST Act which allows you to make an adjustment in a subsequent return where the amount of GST involved is less than $500. This means that if the creditors you are unable to get details of by 28th October do not exceed $25,875 you can make the adjustment, $500, in the next GST return. This would be preferable to filing a late return due to the creditors not being available.

Issues where GST returns straddle the GST rate change date

The GST is payable with a return furnished monthly, two monthly, or six monthly.

The design of the GST Return Form is based on taking the tax fraction of goods and services received or provided and hence arriving at the net GST payable or receivable.

Where a taxpayer is accounting for GST on the invoice basis, and has a GST return period ending on 30th September 2010, there will be no problems. The returns will be based on the dates of the invoices received or issued.

Where the return straddles 1 October it will not be possible to do a "conventional GST return" using two rates. Therefore a special return will be required on 30th September 2010.

Copies of the special return form will automatically be sent to affected taxpayers

Trading over midnight on 30 September: My business will be operating on midnight of 30 September, when the new rate takes effect and I will be making supplies both immediately before and immediately after midnight. How do I account for the new rate?

It is accepted that in practice it will be difficult to identify the precise point when sales should be returned at the new GST rate in the above circumstances. However, similar issues will arise for this group of taxpayers at the end of each GST reporting period, as businesses who trade on a 24/7 basis, or who make supplies at midnight on the last day of any GST reporting period need to have a notional cut-off time. The cut-off time delineates when sales for one period cease and sales begin to be made for the next period. Inland Revenue have advised that businesses should follow the same process they normally use to determine which GST return a sale around the end of one GST period is made in.

For example, Jim is registered for GST on the payments' basis. He operates a bar that trades past midnight every night. It would be assumed that when Jim does his banking on Friday 1 October, the amount that he banks would relate to the sales that his bar made before 1 October.

Private Training Establishments (PTE): As a registered PTE, my students' course fees are required to be paid into a trust. As the course progresses, the trust progressively releases these course fees to my PTE. Does the 15 percent GST rate apply to the amounts that are released by the trust to my PTE after 1 October 2010?

Yes, the 15% GST rate applies to these amounts. However, the transitional provisions give registered PTEs the option of making an up-front adjustment in their 30 September GST returns, based on the amount held in trust for the PTE as at 30 September 2010. This would apply irrespective of whether the PTE returned GST on an invoice, hybrid or payments basis. The adjustment would give them a credit to cover the additional GST that would be payable when course fees held in trust as at 30 September 2010 are subsequently released to them.

To establish the amount of the adjustment the fees held in trust on 30th September should be divided by 51.75. The resulting figure should be entered on the GST Return, which includes the 30th of September, as a credit in box 13 or 13A of the GST return.

Laybys: If I put an item on layby, what is the amount of GST I have to pay on the purchase?

Generally speaking for laybys, the amount of GST you pay on the purchase depends on when you and take ownership of the item regardless of when the final payment is made. . For example, if you make your final payment and pick up the goods, at a later date, the GST rate applicable is normally the rate applying on the date the goods are uplifted. Therefore if the goods are collected;-

• on or before 30 September 2010 you'll be charged GST at 12.5%.
• on or after 1 October 2010 you'll be charged GST at 15%.

There are, however, transitional rules for layby sales arrangements made before Budget day (20th May 2010).

Layby sales - transitional rule: How do the new lay-by sales transitional provisions apply?

Example: A customer enters into an agreement to lay-by a TV for Christmas 2010 on 10 April 2010 with TVco (supplier). The customer pays TVco an amount every fortnight until he picks up the TV on 15 December.

As a supplier, TVco can elect to pay for all payments they have received from the customer up to and including 30 September to be at the 12.5% GST rate and include this total figure in their sales for the return period covering September. TVco will need to issue an invoice for the total of these payments.

The rest of the payments received after 1 October will be subject to GST at 15%, when the goods are delivered. TVco would include the total of the rest of the payments in the return covering December 2010 at 15%. The supplier will need to issue an invoice for the total of these payments.

What is the new composite rate for rest homes and private hospitals?:

In 1986 Inland Revenue reached agreement with bodies that represent rest homes and private hospitals on a standard apportionment rate of domestic and non-domestic goods and services for rest homes and for private hospitals.

Those rates were:

• For rest homes - 45% domestic / 55% non-domestic; and
• For private hospitals 35% domestic / 65% non-domestic.

Based on these agreements and a GST rate of 15% for non-domestic goods and services and a 9% rate for domestic goods and services:

• The new composite rate for rest homes is 12.3% (previously 10.25%); and
• The new composite rate for private hospitals is 12.9% (previously 10.75%).

Bookings made before 1 October 2010: What is the rate of GST for a family holiday in November 2010, which I booked for in 20 August 2010?

If you booked and paid for the holiday in full before 1 October, GST at 12.5% would apply. That is, you would pay 12.5% GST on the purchase of trip, and the supplier would account for GST at the corresponding 12.5% rate.

If a booking is made, and a deposit has been paid, on a quoted price of 12.5% GST before 1 October 2010, GST would be payable at 12.5% if the supplier actually receives the deposit before 1 October 2010.

If there was only a booking made before 1 October, the issuing of an invoice may trigger the time of supply, and GST at 12.5%.

In any case, the nature of each individual agreement is important and each agreement will need to be closely examined in light of its own contractual terms.

Reissuing of tax invoices after 1 October: I issue a tax invoice on 25 September 2010 with an incorrect name on it. This error is discovered on 13 October. If I reissue a replacement invoice after 1 October, will I have to charge GST at 15% on that supply?

The legislation that has been enacted to provide certainty on various transitional issues applies in these circumstances (see new section 78AA(13) of the GST Act). Provided the original incorrect invoice is cancelled by issuing a credit note that complies with the requirements of section 25 of the GST Act and a replacement invoice is issued to the correct recipient, the replacement invoice can account for GST at the 12.5% rate.

Insurance receipts: What happens if my insurance company makes a payment to me that I do not receive until after 1 October?

When a GST registered party receives an insurance payout from their insurer in relation to a loss incurred in the course or furtherance of their taxable activity, they are required to pay GST on that payment. A deemed supply arises on the day the registered person receives the payment. (section 5(13))

A payment may be made by the insurer in late September 2010 but not received by the insured party until October 2010. This would mean that the recipient has to pay GST at the rate of 15% on the payment, but because the payment by the insurer may only factor in GST at the old rate of 12.5%¹, the overall payment may not fully cover the loss.

An amendment provides some leeway for payments in the pipeline (see section 78AA(14)). A payment under a contract of insurance received on or after 1 October 2010 is treated as being received on 30 September 2010 if:

• the payment is made before 1 October 2010; and
• the registered person receives the payment on or before 11 October 2010.

The old 12.5% rate of GST therefore applies to the payment in these circumstances.

A simple way for people on the payments basis or the hybrids basis to deal with this situation is to treat the payment paid in September but received in October, as a debtor as part of the adjustment required in the GST return which includes the 30th of September.

Finance leases: What finance leases are covered by the transitional arrangements?

In agreements to hire that are finance leases, GST is applied to the supply of the good in question (a motor vehicle, for example) but not to the finance component of the transaction as financial services are GST-exempt.

In such leases the interest and principal components may be in effect calculated actuarially but, to ease compliance, GST payments are able to be based on a straight-line approach over the term of the lease. This means that more GST is payable on the earlier lease payments than is actually required. A square-up adjustment is normally only done when the lease terminates, to reflect any difference between the actual and expected residual value of the leased asset.

With a rate change occurring during the contract term, and in the absence of the transitional provision, the new rate would apply to the remaining (monthly) payments under the contract.

The transitional provision allows certain finance leases entered into before 1 October 2010 for a maximum term of five years to continue to be able to be accounted for at the 12.5% rate, if the lessor so elects.

The lessor electing this option, is required to advise GST-registered lessees to deduct input tax at the 12.5% rate on payments made after 1 October 2010. Only leases where under the agreement part of the (monthly) payment is consideration for a supply that is the provision of credit under a credit contract, and that amount decreases for each successive payment, qualify for the option.

Transitional legislation: Where do I find the legislation that enacts the transitional provisions for the GST rate change?

The relevant legislation was the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010, recently passed by Parliament. The legislation can be found in the:
Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010
(PDF, 1.86MB, 104 pages)

The transitional provisions are sections 193 (which inserts a new section 78AA of the Goods and Services Tax Act 1985), section 194 (which amends section 78B of the GST Act) and section 174 (which inserts a new section 183AA(4)(c) of the Tax Administration Act 1994).

Further background information on these changes is on this website under "Further proposed changes to the GST Act 1985 to help businesses transition to the new GST rate"