GST hike business payment rules welcomed

While the GST hike will affect prices at the supermarket checkout, businesses are wondering how it will affect contracts being signed now that extend past October 1. Photo / Bay of Plenty Times

Legislative changes designed to limit confusion for businesses ahead of October's GST hike have been welcomed by a leading accounting firm.

Revenue Minister Peter Dunne is seeking cabinet approval to ensure businesses such as health and general insurers will be able to lock in GST at the current rate for contracts entered before October 1.

For example, an insurance company which supplies services to customers via 12-month contracts, but receives monthly payments, would otherwise have had to ask their customers to increase their payments, including direct debit arrangements, to reflect the increase in GST from 12.5 per cent to 15 per cent from October 1.

Dunne said the proposed changes had come from the work of the recently appointed GST Advisory Panel.

"Following discussion with the Minister of Finance, I will be recommending changes to grandparent at the 12.5 per cent rate health insurance contracts, general insurance contracts and finance leases that straddle 1 October, subject to certain criteria," he said.

Accounting firm PricewaterhouseCoopers GST partner Eugen Trombitas said the rules provided crucial clarity as the clock ticked back toward October 1.

"Some businesses and consumers may find the change of GST rate challenging from 1 October, especially when the invoice date is in September and payment is due in October or later, or when contracts for delivery and supply of goods and services are signed prior to 1 October."

"The proposed GST transitional rules are taxpayer friendly to both New Zealander consumers and businesses and reduce compliance costs."

A further issue surrounding business practices using electronic systems that did not exist in 1989 when the rate last changed had also been identified by the panel.

"I will be recommending minor legislation changes to accommodate that too," Dunne said.

Other changes will ensure that certain contracts which have either been fully invoiced and performed or, in some situations, fully paid but not fully performed remain at the current rate of 12.5 per cent.

PricewaterhouseCoopers aid the new transitional rules aimed to ensure that:

• Businesses, such as general insurers and financial leasing companies, who supply goods or services under contractual terms and receive periodic payments, will be able to lock in GST at 12.5 per cent for contracts entered before 1 October, even though payments are not received or due until after 1 October.

• The GST rules will be in sync with businesses' GST accounting systems to reflect the current more modern and complex systems.

• Some contracts, which have been entered into prior to 1 October, will be subject to GST at 12.5 per cent.

• Suppliers, who have sold goods and products on lay-by, will be allowed to account for GST at 12.5 per cent on payments made before 1 October. Any amounts paid from 1 October will be accounted for at 15 per cent