GST Rate Change

[camera doctor 25]

My brother-in-law and myself are both self employed - GST registered and have some concern over the GST rate change on 1st Oct.

Nowhere on the IRD website that we can find is any mention of adjustments for stock on hand

Think of a business ( most small businesses ) that run GST on Payments basis - all stock on had at 30th September has been bought and paid for at 12.5% GST

Therefore 12.5% GST has been claimed on GST return.

BUT -- Item is sold after 1st Octoberer, and GST of 15% is added - to the retail price - therefore on next GST return GST of 15% of the Retail price will be due, effectively meaning the business has had to pay the difference between the claimed 12.5% and 15% on the cost price........

Please show me where I am wrong, or where the adjustment for this is to be made - and lets remember, some stock may sit on shelves for months / years before it is sold, so the only FAIR way is for us all to do stocktakes on the 30th September, and be able to claim the difference on the complete stock ??

Smalll $$$ to my business, but think or a large retail shop or BMW NZ for example, this could run into 100's of thousands of dollars.

My Brain hurts

[Lucan 196]

Had another think. You'd think you could claim the difference after the rate change has been made.

[Apex 693]

I don’t see what’s confusing, the consumer is paying the higher rate not you.

[Lucan 196]

Thats not what Greg means.

From the IRD website

If you make a sale on or before 30 September 2010 when you use the payments accounting basis

You'll charge your customer 12.5% GST.

If you receive the payment on or after 1 October you'll account for it in a later GST return at 15%. This means you'll pay 2.5% more GST than you receive.

We'll give you a 2.5% credit on your GST rate change adjustment that you'll complete as part of your GST return that includes 30 September 2010.

[nath 134]

I have questioned this as well and have had different answers so as to leave me even more confused than before I asked...

Another downer is depending on how many middlemen come before your retail, their prices will all be up as well, so the cost that you get a product in at will be higher than before....

Things will get more expensive for EVERYONE involved in retail, consumer back.

[bravo 35]

Nathan - up north at the mo? There's a free talk on the changes at PKF Poutsma Lemon, Paihia on Wed and Thurs night at 5.30pm. Sorry you've missed the KK ones last week.

I'm going to the Paihia one - will report back. Dad went to the KK one and said was very good.

[*Glenn* 854]

I honestly don't know what the problem is. Everything purchased before or on the 30th of September incurrs 12.5% Gst, if you sell it on the 1st of October or after it has 15% Gst applied. You make an extra 2.5% profit... is that hard ?

[Jeddy 0]

I honestly don't know what the problem is. Everything purchased before or on the 30th of September incurrs 12.5% Gst, if you sell it on the 1st of October or after it has 15% Gst applied. You make an extra 2.5% profit... is that hard ?

So a $5.99 product becomes $6.12? Unlikely.

Either the cost is passed on to the consumer, or absorbed by the seller, or a combination of both.

[*Glenn* 854]

So a $5.99 product becomes $6.12? Unlikely.

The cost is passed on to the consumer

If I sell something for $5.00 + Gst on the 30th Gst will be 12.5% if I sell it on the 1st it will be $5.00 + 15% Gst even if I bought it incurring 12.5% Gst So I make an extra 2.5% on the Gst at the consumers cost

Edited August 23, 2010 by *Glenn*

[nath 134]

Nathan - up north at the mo? There's a free talk on the changes at PKF Poutsma Lemon, Paihia on Wed and Thurs night at 5.30pm. Sorry you've missed the KK ones last week.

I'm going to the Paihia one - will report back. Dad went to the KK one and said was very good.

Cool man, na i'm not but i'll get the others to head along it sounds good

[Jeddy 0]

If I sell something for $5.00 + Gst on the 30th Gst will be 12.5% if I sell it on the 1st it will be $5.00 + 15% Gst even if I bought it incurring 12.5% Gst So I make an extra 2.5% on the Gst at the consumers cost

Your prices are gst exclusive though. Whereas in reality, nearly all retailers work on a gst inclusive basis, this is who it will affect. And then they'll decide how to incorporate that into their prices.

[M325is 0]

If I sell something for $5.00 + Gst on the 30th Gst will be 12.5% if I sell it on the 1st it will be $5.00 + 15% Gst even if I bought it incurring 12.5% Gst So I make an extra 2.5% on the Gst at the consumers cost

I'm guessing you are on invoice basis like I am Glenn, they are on Payment basis. And they most likely sell stock at RRP. They wont want to up the price on their items otherwise they will be more then RRP and not very competitive. Retail advertise including GST and no + GST. So unless they go above RRP they will be paying the extra 2.5%

[M325is 0]

But I guess we will be seeing RRP's go up so actually there is no problem, you will just profit 2.5%.

Lucky you for stocking up. It's like me stocking up on prepaid envelopes as they will still be excepted after 30th Oct but will cost me 2.5% less

Edited August 23, 2010 by M325is

[elmarco 56]

If I sell something for $5.00 + Gst on the 30th Gst will be 12.5% if I sell it on the 1st it will be $5.00 + 15% Gst even if I bought it incurring 12.5% Gst So I make an extra 2.5% on the Gst at the consumers cost

Don't you have to do a GST return though? Surely the extra GST is paid to the government, so I don't think you will make an extra 2.5%...

The new rules can actually quite a nightmare to implement depending on the company - and I read recently that things like insurance policies where the contract term runs over the increase will still be charged at 12.5% until the term expires. I think the logic was that it was going to create a massive amount of work for the insurance companies for little return for the government and they saw common sense. For once.

Article here

[OLLIE 26]

it's the stupid payments vs invoice basis ... why can't they just make people use the invoice basis for the change over period ... would make things a lot simpler.

[bravo 35]

But I guess we will be seeing RRP's go up so actually there is no problem, you will just profit 2.5%.

Lucky you for stocking up. It's like me stocking up on prepaid envelopes as they will still be excepted after 30th Oct but will cost me 2.5% less

Meanwhile your opportunity cost of not having the cash available negates the 2.5% saving at nominal short-term lending rates.

It's like the council suggesting I pay all my rates before September instead of waiting for when they are actually due ion 6 months time. Sorry dumbarses, but I'd rather save around 10%pa/2 off my business overdraft than save the 2.5% on the original payment.

I suppose if you have the cash sitting around in a business account not earning interest, then it might be worth it, but most of us probably siphon excess cash off to term deposits and have some level of fluctuating overdraft or term loans etc. Besides, you'd have to buy a lot of envelopes to make a saving of more than a few cents.

[mtk540 3]

OK, I've been following this one and have just sat watching to see where everyone is coming from. I'm an accountant (director in a CA firm) and GST/tax etc is part of what we do every day. Hopefully this will help.

There are two issues that you are talking about here - 1) profit and 2) who is wearing the 2.5% increase in GST.

When a business is registered for GST you should always work in net of GST terms i.e. work out the GST Exclusive price. That is the real cost.

For example:

Glenn buys a widget for $112.50 before 30 Sept so the net cost is $100.00. He gets to claim $12.50 as a purchase (Input) on his GST return.

He then sells it before 30 Sept for a 100% markup. That makes the sale price $200.00 plus GST ie $225.00 under the 12.5% rate. He puts the $25.00 as a sale (Output) in his GST return.

His profit is $100.00. He pays $12.50 to the IRD in his GST return ($25.00 minus $12.50). That difference of $12.50 is actually what his customer paid him so he is merely passing that on to the IRD. OK, that's what happens now.

If he sold the widget after 1 Oct then it would be sold for $100.00 (what it cost) + $100.00 (his markup) plus GST of $30.00 (at 15%) i.e the sale price is $230.00. The customer pays the additional GST, not Glenn. Glenn's real job is that of a tax collector as he simply passes the net GST content (the $30.00) onto Uncle John and Uncle Bill who will then pass it back (plus a bit more) as tax cuts.

The rise in GST is born by the end user i.e the man or woman in the street as generally they cannot claim GST. If they did, then they would most probably pass it on to their customers and pay the GST on their sale on to the IRD.

@ Greg S - if you add the 15% onto your GST exclusive price then you are not out of pocket. Your customer has paid you the extra 2.5%

@ Glenn - you are not making a 2.5% profit as you are paying that to the IRD. Your profit on the widget is $100.00 whatever the GST rate is unless you put your markup up (increase profit) or don't change your final price (reduce profit - see below).

I fear that many businesses will double dip (increase price by markup and GST) to compensate in some way for the bad 24 months we have all been through. The loser here is the end consumer.

@ Glenn and Shelley - if you keep your RRP the same after 1 Oct i.e. $225.00 then the nett sale price is $195.65. You have only made a profit of $95.65 on that $100 widget you bought, whereas before 1 Oct you made a profit of $100.00.

In this instance you have subsidised the customer and worn the 2.5% increase yourself as it has cost the customer no more.

Herein lies your dilemma - do you keep your RRP the same to the customer or do you put the price up? It's difficult on price sensitive items. By keeping your prices the same you are doing yourself a dis-service. You will suffer as your profit will reduce. Your larger suppliers (Product, Phone, Power, Rent & rates, Petrol) will not be keeping their prices the same.

If most of your customers are other GST registered businesses then putting the price up will not be a problem as they can claim the GST back. If you are a retailer (e.g. the local butcher) selling to the general public then you may see some customer dissatisfaction at the counter. In time they will get used to it. Most, if not all, customers are expecting prices to rise.

Hope this has helped in some way.

[cliffdunedin 8]

Nice work Mike especially for the average consumer to see how the changes work.

[kiwi535 538]

Your prices are gst exclusive though. Whereas in reality, nearly all retailers work on a gst inclusive basis, this is who it will affect. And then they'll decide how to incorporate that into their prices.

its not hard,on the 1st of the month,everything will go up by 2.5percent.Period.There will have to be lots of price alterations for large retailers.I cant see a case for any organisation to hold to a pre gst increase price,thereby losing 2.5 percent.

[Jeddy 0]

An Apple 13" MacBook Pro, retails for $1999, has ever since the release. With the increase in GST to 15% that price would go up to $2043, do you think apple will do that? I wouldn't think it was likely. Little things, like goods in super markets of course will change, but bigger ticket items may be less likely to change.

its not hard,on the 1st of the month,everything will go up by 2.5percent.Period.There will have to be lots of price alterations for large retailers.I cant see a case for any organisation to hold to a pre gst increase price,thereby losing 2.5 percent.

[bravo 35]

To answer the OP (now I've caught up with it all to some extent). it will depend on the time of supply. So, yes, potentially some of your stock on hand will have been claimed from the IRD at 12.5%, and when you sell it, the customer (and you) will have to pay the IRD at 15%. So you don't need to stock take, and you don't need to worry about it.

You've already claimed the 12.5% you paid when you got the stock, and you'll be passing the 15% on to the customer when you sell it.

You should be talking to your accountant now as there are quite a few issues which you need to consider (not to mention 2x GST returns to file).

[Wom 0]

I'm an accountant (director in a CA firm) and GST/tax etc is part of what we do every day.

I might possibly look after your life insurance, we have a few NZCA firms on our books Edited August 26, 2010 by Wom

[kiwi535 538]

An Apple 13" MacBook Pro, retails for $1999, has ever since the release. With the increase in GST to 15% that price would go up to $2043, do you think apple will do that? I wouldn't think it was likely. Little things, like goods in super markets of course will change, but bigger ticket items may be less likely to change.

why should they absorb it.This change will apply to every competitor and product so relatively speaking nothing will change.

[Jeddy 0]

why should they absorb it.This change will apply to every competitor and product so relatively speaking nothing will change.

I'm not saying they should. I just think its unlikely they will however we will find out October 1st.

Also the psychology of pricing means most prices end in .99, I don't see that changing. Which means in most circumstances, either the consumer pays more than the increase in GST or the business has a reduced margin.

[M325is 0]

For example:

Glenn buys a widget for $112.50 before 30 Sept so the net cost is $100.00. He gets to claim $12.50 as a purchase (Input) on his GST return.

He then sells it before 30 Sept for a 100% markup. That makes the sale price $200.00 plus GST ie $225.00 under the 12.5% rate. He puts the $25.00 as a sale (Output) in his GST return.

His profit is $100.00. He pays $12.50 to the IRD in his GST return ($25.00 minus $12.50). That difference of $12.50 is actually what his customer paid him so he is merely passing that on to the IRD. OK, that's what happens now.

If he sold the widget after 1 Oct then it would be sold for $100.00 (what it cost) + $100.00 (his markup) plus GST of $30.00 (at 15%) i.e the sale price is $230.00. The customer pays the additional GST, not Glenn. Glenn's real job is that of a tax collector as he simply passes the net GST content (the $30.00) onto Uncle John and Uncle Bill who will then pass it back (plus a bit more) as tax cuts.

You missed out the final workings:

He would have claimed the $12.50 in GST in September's GST return from buying the widget.

In the November GST return he would give $30 in GST from the sale of the widget.

Can you finish this for us... who wins and who looses?