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GST (Goods and services tax) Te tāke hokohoko

GST on special supplies (l - p)

Lay-by sales

The time of supply is the date when the title of the asset passes to the purchaser. If the sale is cancelled and the seller keeps part of the money, the time of supply is the date of cancellation.

Include the full cost of a lay-by sale in the taxable period in which the purchaser takes ownership of the goods. This is the time of the final payment.

Even if you use the payments basis, do not account for the lay-by payments as you receive each one, but wait until you receive the final payment.

Example

Marilyn buys a CD player on lay-by from Music Ltd in January. The full price is $560. Marilyn pays $160 as a deposit, and instalments of $200 in February and March. The CD player is delivered in April. Marilyn accounts for GST in the taxable period covering March, when the final payment was made and ownership changed.

If a lay-by sale is cancelled and the retailer keeps some of the payments already made (or receives payments later) this amount is accounted for in the taxable period in which the sale was cancelled. GST is calculated on the full amount kept, or received later, and must be included in the return.

Example

Marilyn (see previous example) cancels the agreement in February, and receives a refund of $300. She has forfeited $60, which Music Ltd accounts for in the taxable period covering February.

If you purchase goods on lay-by, you may claim a deduction when you have fully paid for them, and you hold a tax invoice.

If you cancel a lay-by sale, you may claim 3/23 of any cancellation charge made by the supplier, in the period you cancel it, as long as you hold a tax invoice.

Important - 1 October 2010 GST rate change affecting lay-by sales

Retailers who use lay-by sales will need to account for the new rate of GST when they set up any arrangement to pay that will span the GST rate change.

Example: Craig buys a Blu-Ray player on lay-by from Soundz Ltd in August 2010. The GST rate that applies to the purchase will depend when the final payment is made. If the final payment is made:

  • before or on 30 September 2010, the GST rate applied to the transaction is 12.5%
  • on or after 1 October 2010, the GST rate applied to the transaction is 15%.

If Craig cancelled the arrangement to buy, the GST rate that would apply depends on the date of this cancellation. If the cancellation is made:

  • before or on 30 September 2010 the GST rate applied to the transaction is 12.5%
  • on or after 1 October 2010 the GST rate applied to the transaction is 15%.

Lay-by agreements entered into before 20 May 2010

There is a special time of supply option for lay-by agreements entered into before the GST rate increase was announced on 20 May 2010 if the ownership of the goods did not pass to the purchaser before 1 October 2010.

The supplier can elect to apply the GST rate of 12.5% for payments received before 1 October 2010 by including those payments in their GST return period that includes 30 September 2010.

Payments made on or after 1 October 2010 include GST at 15% and are accounted for in the normal manner for lay-bys (i.e., all payments made on or after 1 October 2010 are accounted for in the GST return period in which the purchaser takes ownership of the goods).

If you are purchasing goods for your business activity by lay-by, and the agreement was entered into before 20 May 2010, you should check with your supplier to see if they are choosing to use this special option.

If your supplier has chosen to use this option you should account for your payments in the same manner as the supplier (i.e., all payments before 1 October 2010 as an expense your GST return period that includes 30 September, and all payments on or after 1 October 2010 as an expense in the GST return period that you take ownership of the goods).

Local authority rates

Local authorities are the only registered persons who charge rates.

A local authority that uses the invoice or hybrid basis accounts for rates charged in full.

The time of supply for rates is the earliest of the following:

  • the date of an instalment notice for a single payment
  • the due date for payment
  • the date when payment is received.

Using the payments basis, local authorities account for all payments of rates at the time they are received, regardless of whether they are paid in one instalment or several.

Registered persons may claim GST for payments of rates for premises used in a taxable activity.

If you use the invoice basis and you pay rates in one lump sum, you may claim a GST credit when you make the payment or receive an invoice, whichever is earlier. If you pay rates in instalments, you may claim a credit when each instalment is due or paid, whichever comes first.

For the payments and hybrid basis, you claim a credit for rates when you make payment, provided you hold a tax invoice.

Important - GST rate change affecting time of supply

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

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

Example: We Make Roads Limited receive a rates notice from their local council at the start of July 2010. They are given the option of making payment for the full amount of the rates or in four instalments. They choose to pay in instalments.

We Make Roads Limited receive a notice for the instalment for the quarter ended 31 December 2010 on 20 December 2010. The due date is 5 February 2011. We Make Roads Limited make a payment on 4 February and account for the rates in the return covering the December 2010 period. The GST rate will be 15%.

If they had chosen to pay all the rates in one payment in July 2010, the GST rate would have been 12.5% and they would account for them in the return covering July 2010.

Lotteries and other games of chance

If you run raffles, lotteries, or other games of chance, you must account for the proceeds of the lottery (such as total sales of tickets or cards) less the total amount of cash prizes.

Example
Total proceeds of a raffle were $1,070 (535 tickets at $2 each).
Cash prizes were:
1st $   500
2nd $   200
3rd $   100
Total cash prizes $   800
Total proceeds $1,070
Less total cash prizes $   800
Difference $   270
$270 must be included in Box 5 of the return for the taxable period covering the date the raffle was drawn.

 

Important - GST rate change affecting time of supply

Time of supply occurs at the time of the first draw or determination of a result. There is no specific rule for Instant Kiwi type games etc so the general time of supply will apply, ie when payment for the Instant Kiwi game is made.

Example: The total proceeds of a raffle were $1,070 (535 tickets at $2 each). The total cash prizes were $800, giving a difference of $270.

The raffle draw was 31 October 2010. $270 must be included as sales and income of the return covering the October 2010 period when the raffle was drawn. The GST rate of 15% will apply.

If one raffle has a number of draws, account for the GST in the return covering the date of the first draw.

You may claim GST on the purchase of non-cash prizes in the normal way, as long as you hold a tax invoice.

Payments of deposits including to stakeholders

When a supplier receives a deposit under a contract, the general time of supply will be triggered. This applies equally to conditional or unconditional contracts.

When a deposit is paid to a person as stakeholder, there will have been no receipt by the supplier and the time of supply will not be triggered.

A supplier may be a stakeholder. A stakeholder relationship requires agreement by all parties. A person cannot declare themselves a stakeholder unilaterally. A stakeholder holds the deposit on behalf of both parties and owes a contractual obligation to both parties. Where there is no binding contract or agreement, it must be shown that the payment is for the supply of goods or services, whether it occurs now or in the future. Where this is the case, the receipt of the deposit by the supplier will trigger the time of supply.

Important - GST rate change affecting time of supply

Example: Sarah is getting married on 15 January 2012. She would like to hold her wedding function at Victoria House. She meets with the functions manager to consider their services, and they agree that the wedding will be held there on that date. No arrangements are made about the actual wedding function.

Sarah must confirm the arrangements for her wedding within six months of the chosen date to secure the date beyond that time. She pays $500 to Victoria House on 10 August 2010 to hold the date she wants. The cost of the wedding will be reduced by this amount if the wedding function goes ahead. The amount paid is refundable at any time up to six months before the wedding.

In this situation, it is considered that Victoria House has received a payment from Sarah to hold her wedding there on the date booked. This is a separate supply from the wedding itself. Victoria House will have to account for output tax on the $500 in the return covering the August 2010 period. The GST rate of 12.5% will apply to this deposit.

Example: Wilf, a property developer, enters into a conditional agreement to sell a property to Megan. Megan pays a deposit to Eagle Real Estate Ltd on 25 September 2010. Under the terms of the REINZ-ADLS agreement, the deposit is held by Eagle Real Estate Ltd as stakeholder and the stake-holding ceases when the agreement becomes unconditional or is cancelled or avoided. The agreement becomes unconditional on 10 October 2010.

Eagle Real Estate Ltd is required to hold the deposit for 10 working days from the date of receipt and as a result it does not pay the deposit to Wilf until 20 October 2010. The time of supply will be triggered on 10 October 2010 when the agreement becomes unconditional. From that point, Eagle Real Estate Ltd will be holding the deposit not as stakeholder, but as agent for Wilf.

Wilf will have to account for the GST at a rate of 15% on the full value of the transaction in the return covering the October 2010 period.

You can read more detailed information in our interpretation statement IS10/03 - GST: Time of supply - payments of deposits, including to a stakeholder.

Periodic payments and hire agreements

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.

Periodic payments and hire agreements spanning 1 October 2010

When an agreement to hire or provide services in return for periodic payments spans 1 October 2010, then the GST rate of 15% will apply to any payments that become due or are received on or after 1 October 2010.

Where the term of the agreement began before 30 September 2010 the supplier can choose to increase the amount of GST to be paid, for payments due or received on or after 1 October 2010, in order to compensate for the GST rate increase. If the supplier chooses this option they should issue a debit note or a replacement invoice to advise the recipient of the increase.

Contracts of thirteen months or less spanning 1 October 2010

A transitional rule allows suppliers to choose to continue to apply the GST rate of 12.5% to payments due on or after 1 October for short term hire agreements or services supplied under an agreement which provides for periodic payments.

If the following criteria are met the GST rate of 12.5% can continue to apply to payments due on or after 1 October 2010 up to the next review date (or less if the contract is for a lesser period):

  • The term of the agreement must begin before 1 October 2010 and end after that date, and
  • Payments for the supply under the agreement must be set to end, or due to be reviewed, for periods of 396 days or less, and
  • The supplier notifies the customer by 31 October 2010 that all payments due on or after 1 October 2010 will be treated as including GST at the rate of 12.5%.

The supplier must ensure that all payments due on or after 1 October 2010 are accounted for in the GST return period that includes 30 September 2010 in order to elect that those payments will remain at the 12.5% GST rate.

If the supplier chooses this option then the time of supply for all payments due on or after 1 October 2010 becomes 30 September 2010. The supplier is treated as having issued a tax invoice on 30 September 2010.

GST registered customer accounting for the GST on these payments

If you are purchasing goods and services under an agreement that may qualify to have payments continue at the GST rate of 12.5% you should contact the supplier to find out if they are electing to use this transitional rule.

If your supplier has elected to use this transitional rule, you account for these payments on a GST return according to your accounting basis:

Invoice accounting basis

  • all payments due on or after 1 October 2010 are treated as if invoiced on 30 September 2010, and are included 30 September 2010 as an expense at the GST rate of 12.5%
  • if you're unable to account for these payment in the GST return that includes 30 September 2010 (for example, if a tax invoice was not held or notification not received before that return was filed), then a late claim should be made. The late claim should be for all the payments due on or after 1 October 2010, and should be made as an adjustment for the GST portion at 12.5%, rather than included as a purchase at 15% on your GST return.

Payments or hybrid accounting basis

  • the payments due on or after 1 October 2010 should be included in the GST rate change adjustment in the 30 September 2010 return. Once accounted for in that one-off adjustment then the payments can be accounted for in the GST returns in which they are paid at the rate of 15% without further adjustment.
  • if the payments due on or after 1 October 2010 were not able to be included in the GST rate change adjustment (for example, if a tax invoice was not held or notification not received from the supplier before the adjustment was calculated) then each payment will need to be accounted for as an adjustment on the GST return in which the payment was made at the rate of 12.5%. The payments should not be entered as purchases in the GST return, as this will result in GST being incorrectly claimed at 15%.

If you become aware that your supplier chose to treat payments at 12.5% after you have already accounted for some payments at 15% then the normal guidelines apply to correct GST returns you've already filed. In many cases the correction can be made as an adjustment on a later GST return.

For more information see correct an error in your GST return.

Amendments or cancellation of the contract

If the contract subject to the transitional rule is cancelled and, therefore the supply is not fully provided, the supplier would need to issue a credit note to adjust for the change and the GST incorrectly paid.

Changes in price (credit and debit notes)

Sometimes the price of goods or services will change after an invoice has been prepared or a payment made.

Reduction of the agreed price

If you supply goods and services and reduce the price of the supply after issuing an invoice or receiving payment, you must include the amount of the reduction in the taxable period in which it was made. This is usually the taxable period when the credit note was issued.

If you have already issued a tax invoice, you must always issue a credit note.

The buyer must include the reduction shown on the credit note in the return for the period covering the time of reduction. This is usually the period in which the credit note was received.

Example

Kevin sells cleaning goods to Maria for $1,000. Maria pays Kevin $900 as some goods were damaged. Kevin issues a credit note for $100. Both Maria and Kevin use the invoice basis.

Kevin's return
$1,000 is included in Box 5 (sales). $100 is claimed in Box 11 (purchases) in the return covering the time when the reduction was made.

If the invoice and credit note were issued in the same period, Kevin could have shown the net amount of $900 in Box 5 instead.

Maria's return
$1,000 is claimed in Box 11 (purchases). $100 is included in the total sales in Box 5, in the return covering the time when the reduction was made. If Kevin received the invoice and credit note in the same period, she could claim the net $900 in Box 11.

Increase of the agreed price

If you supply goods or services and increase the price of the supply after issuing an invoice or receiving payment, you must include the amount of the increase in the taxable period in which it was made. This is usually the taxable period in which you issued the debit note.

If you have already issued a tax invoice, you must issue a debit note for any increase in price.

The buyer must include the increase shown on the debit note in the return covering the time the increase was made. This is usually the taxable period in which the debit note was received.

Example

Sonia sells goods worth $1,000 to Costa for $1,000 by mistake. Sonia then issues a debit note to Costa for $100. Both Sonia and Costa use the invoice basis.

Sonia's return
$1,000 included in Box 5 (sales). The extra $100 is also included in Box 5, but in the return covering the period the increase was made.

Ken's return
$1,000 included in purchases, in Box 11. $100 claimed in Box 11 in the return covering the time the increase was made.

Credit or debits notes for invoices at 12.5%

The GST rate on a credit or debit note must be the same as the rate that applied at the time of the original invoice. A credit or debit note issued for a transaction that was originally invoiced at 12.5% must have GST included at the rate of 12.5%.

If you issue or receive a credit or debit note that includes GST at the rate of 12.5% account for the difference between the GST component on the original invoice and the GST component of the credit or debit note as an adjustment in your GST return.

Example

Ravi supplies Matt with an invoice for some goods on 20 August 2010. On 3 December 2010 Ravi realises that he has put incorrect figures on the invoice for the transaction with Matt. Ravi sends Matt a credit note for the difference using the GST rate of 12.5%.

Matt makes an adjustment to reflect the credit note on the return which covers the December 2010 period.

Private dwellings as part of taxable activity

If a registered person purchases a taxable activity that includes a dwelling, the dwelling may be treated as a separate supply (exempt). If the dwelling is treated as a separate supply, to be able to claim a GST credit the purchaser must prove that the principal use of the dwelling is part of the taxable activity. If this is not the case, the purchaser cannot claim for the dwelling.

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