Buy now to beat tax rise

Anabela Rea worries GST might increase her gym membership. Photo / Herald on Sunday

Tax experts are urging people to shop around for goods and services when GST increases on October 1.

GST will rise from 12.5 to 15 per cent and the Government has proposed exceptions to the increase.

Assuming the proposals go through, consumers should start shopping around, KPMG tax partner Peter Scott says.

Finance leases, contracts such as gym memberships and insurance policies, and laybys are all to be given a reprieve.

For example, if you take out a 12-month gym membership on September 1 your gym will not need to charge you the new GST rate until your contract comes up for renewal next September.

This applies to any service where there is a contract of up to a year taken out before October 1 and where regular payments are made, Scott says.

The key is that the provider will have a choice whether to pass on the GST increase, he says. Some companies will simply find it too much hassle to make the change midway through a contract.

"Often what's driving that is not so much what the customers will be thinking but it's actually the way their systems are set up, that their systems are going to automatically keep returning GST at 12.5 per cent."

However, it is a conversation customers should be having with their gyms and other service providers, Scott says. The proposed exceptions don't appear to be well known yet.

"I'll be finding out about that today," chief executive of the Club Physical chain of gyms Paul Richards said when the Herald on Sunday called. "I thought that we would just add on the extra percentage."

Around half of Club Physical's clients are on 12-month agreements, costing about $900 each. He would probably make the adjustment to affected clients' agreements but not promote it as the media would soon be swamped with 'beat the GST rise' advertisements.

Chief executive of AXA Ralph Stewart says the insurer has already planned not to pass on the GST increase to existing customers. It will also absorb the extra 2.5 per cent on policies in the pipeline, he says.

Sovereign general manager of marketing and product for insurance David Drillien, says it hasn't made its final decision on what do to regarding existing policies but hopes to have an answer in the next few days. He points out that life insurance does not attract GST and is therefore not affected.

Another proposed exemption is finance leases of up to five years. This means vehicles and office equipment where there is a finance component, Scott says.

Again, some companies would elect not to pass on the 2.5 per cent while others will. "Certainly if you're a consumer that's something worthwhile raising with your leasing company."

General manager of Toyota Financial Services Mark Cowling says his company has made the decision not to pass on the increase because of the implications for its systems. "Finance leases are quite a complex beast."

Customers may also want to pick up any items they have on layby, Scott says.

GST rules say a sale isn't recognised until final payment was made but the Government is proposing that layby payments made before October 1 attract 12.5 per cent GST while those after that would be hit with the increase.

Says New Zealand Retailers Association chief executive John Albertson: "If it's only a little bit of the payment left you may waive it but if it's taken out on September 29 you'd probably look at doing the whole lot at 15 per cent."

Increase too taxing for gym goers

Students Anabela Rea and Nicko Riahi don't want to pay any more on their gym membership than they already do.

Rea, 20, has just paid for six months membership at AUT's gym.

But the second-year communications student is worried the price will go up.

"I would be annoyed because I chose it because it was cheap. If it went up it would defeat the purpose of me being there."

Rea was considering trying another payment plan if she rejoined the gym after her current membership expired.

When she joined the gym she paid $40 in advance for a six-month membership that costs her $10 a week. All up she paid around $260.

Rea uses the gym five days a week for weight training and a 5km run on the treadmill.

But she would be hesitant about rejoining if the GST increase was added to her membership fee.

"I couldn't pay more than that really."

Meanwhile, Riahi paid a $220 student rate for a six-month membership at the Browns Bay Leisure Centre.

She joined the gym so she could do Les Mills classes such as Pump and Bodycombat at a cheaper rate than a branch of Les Mills would charge.

The finance student did not know whether she would continue her membership when it expired in January.

"I probably will be because it's so cheap."

Beat the rise

The Government has proposed a set of exceptions to the incoming hike in GST:

* Talk to service providers such as gyms and insurance companies. If your membership or policy is for up to 12 months and was taken out before October 1 they will not have to charge you the GST increase.

* Talk to your leasing company. If you have a finance lease of up to five years, for example on your car, the lessor will not have to charge you the extra 2.5 per cent in GST.

* If you're thinking of taking out a contract or finance lease check out which providers will give you the cheaper GST rate and sign up before October 1.

* Pick up any laybys before October 1.

* Use tradespeople who are not GST registered. If they're not, they do not have to charge you GST.

maria.slade@hos.co.nz