Changes in GST rate: Implications for schools
How the new GST rate affects Crown-funded schools - information for principals, administration staff and boards of trustees. You can also refer to the Inland Revenue website for up-to-date advice or consult your financial service provider.
GST rate is 15% from 1 October
The GST rate increases from 12.5% to 15% from 1 October 2010 as announced in the 2010 Budget.
If you are well prepared for this change, your school should have a smooth transition to the new rate.
What GST rate do I charge on the invoice?
The GST rate depends on when the goods or service is supplied.
Supply is when the supplier issues an invoice, or any payment is received by the supplier – whichever comes first (see time of supply rules). Any payment determines the time of supply; it doesn't have to be payment in full.
The goods or service delivery date does not determine when the supply takes place for GST purposes. The time of supply rule means that if a transaction occurs before 1 October 2010, the 12.5% GST rate applies, even if the goods or services are not delivered until after 1 October.
Changes to the GST Act affect lay-bys, contracts, finance leases and utility payments. The business or supplier, can choose an option as long as certain criteria are met. Check how your suppliers are applying GST to these goods and services. Also check if any of these GST transitional rules apply to you.
For specific situations, such as successive supplies, finance leases and hire purchase agreements, visit the GST section on the Inland Revenue website.
- A parent orders a school uniform for their child on 25 September 2010. On that day, you issue an invoice which is due to be paid by 8 October. On 4 October the uniform is collected from the school and payment made.
The GST rate is 12.5%. Reason: the invoice is issued before 1 October 2010, even though the goods weren’t supplied or payment received until 4 October.
- A guitar is bought for the music room on 12 September 2010 and cash paid (via eftpos) from the school’s operating account. On 16 October 2010, when preparing the GST return for the period ending September, it’s found that a tax invoice was never issued for the purchase. You contact the retailer and ask for a tax invoice.
The GST rate is 12.5%. Reason: payment was made in September.
- A tradesman repairs a broken window on 23 September 2010.and issues an invoice on 20 October 2010, with payment due a month after that.
The GST rate is 15%, even though the service was provided in September. Reason: the invoice is dated after 1 October 2010.
Possible effects of the change
You will need to change the GST rate in your accounting system to 15% effective 1 October 2010.
However, you will still need to use the 12.5% GST rate for a period, as you could be issuing or receiving invoices for services and/or goods invoiced or paid before 1 October 2010. Your accounting system needs to be able to cope with two separate rates at the same time.
If your accounting system cannot cope with processing transactions holding two rates simultaneously, manual adjustments will need to be made. The Inland Revenue Department website has specific guidance.
Payments made accounting
If your accounts are based on payments made, then all payments made or received after 1 October will be treated as 15% GST rate, when you include them on your GST return – even if the original invoice was at 12.5%.
To correct this, you will need to make a GST rate change adjustment. This is for the difference in GST between supplies invoiced at 12.5% that will be accounted for at GST 15% after 1 October 2010.
The GST rate change adjustment calculation sheet (GST105) has more information about this and will be sent with your GST return that includes 30 September 2010.
As part of your invoice approval process, check your GST-registered, suppliers’ invoices have the GST 15% rate for supplies (goods and/or services) dated on or after 1 October 2010.
As well as suppliers it is also your responsibility to check invoices issued have the correct GST rate.
What do I do if the invoice is invalid?
If the invoice isn’t a valid tax invoice, you won’t be able to claim any GST for this purchase. Contact the supplier and ask them to issue a valid invoice so you can claim GST.
If you receive an invoice with the incorrect GST rate, and the invoice is a valid tax invoice, you can claim GST, even if the wrong rate appears to have been used. The GST will be calculated at 15% on the GST-inclusive amount when you record it on your GST return.
Keep in mind that it can also be correct to issue or receive an invoice showing GST 12.5% after 1 October 2010, if a payment for the good or service was made before 1 October 2010.
Change your automatic payment
You may need to increase any direct debits or automatic payments you make, if the supplier increases the amount they are charging you due to the GST increase. If the amount due for payments on or after 1 October 2010 increases, make sure the supplier gives you a debit note or a replacement tax invoice so you can claim the increased GST amount.
Budgets, forecasts and GST deposits
Take the GST increase into account in your budgets, cash flow forecasts and GST deposits.
Existing supplier agreements
Existing supplier agreements between the school and suppliers can legally be increased by suppliers without negotiation. Discuss this with your suppliers if you feel the increase will have a significant negative impact on your school’s finances.
This also applies to the school when supplying any goods or services.
Calculating GST on inclusive invoices
For invoices received with the new 15% GST rate included, calculate the GST amount by: the total of the invoice divided by 23 x 3.
Example $115.00 ÷ 23 = $5.00 x 3 = $15.00 GST payable.
Can suppliers invoice in advance so the 12.5% rate applies rather than 15%?
Yes. The GST rate is based on the original invoice date.
Inland Revenue has indicated this practice is likely to occur during the initial transition period. It will be an area which it will carefully monitor.
What if the GST increase occurs during your GST return period?
If your GST return period spans 1 October 2010, you will complete a GST transitional return.
This return is in two parts:
- part one covers from the start of your GST return period until 30 September 2010 at 12.5%
- part two covers from 1 October 2010 until the end of your GST return period at 15%.
The GST portion of sales and income, and purchases and expenses for the two parts are added for the total GST to pay or to have refunded for your GST transitional return period.
I received a tax invoice after 1 October 2010 as well as the goods and/or service. What should I claim back?
You’ve received the goods and/or services and the tax invoice after 1 October 2010 when the new GST rate comes into effect. The tax invoice should show GST 15% and that is what you should claim.
I received a tax invoice before 1 October 2010, for goods and/or services I will receive during October 2010 or November 2010. What should I claim back?
The GST amount showing on your tax invoices will be at 12.5% GST. The GST amount charged depends on when goods or services are invoiced – not supplied –based on the time of supply rule.
Can I submit a claims and reimbursements late?
You can make a claim in a later return period if you are unable to claim an expense in the period the supply occurred. For example, if you didn’t hold a tax invoice when preparing your GST return.
If you are making a late claim for an invoice with 12.5% GST in a GST return period that begins after 1 October 2010, you can not enter the claim as an expense in your GST return, because that would mean the GST would be claimed at 15%.
Record the GST portion of the invoice as a credit adjustment in Box 13 of your GST return.
This also applies if you’re claiming the GST after 1 October 2010 on an invoice at 12.5% GST. For example when you’re reimbursing an employee for something they bought for the school.
You’ll also need to account for, as a late claim, any tax invoices you may receive or find for purchases, that should have been accounted for in your GST rate change adjustment. Instead of amending the GST rate change adjustment, simply account for these invoices as late claims.
Note if you do make a GST rate change adjustment for an invoice, you don’t need to make any further adjustment when you pay the invoice. The one-off GST rate change adjustment is to reduce the amount of adjustments when supplies made at 12.5% GST are later paid and accounted for at 15% GST.
What happens with school fees received on or after 1 October 2010, based on invoices dated before 1 October?
Inland Revenue bases any and all redeemable and/or payable GST on invoice date. This means the person paying can only claim the GST amount stated on the invoice. The school is also liable for GST at the rate on that invoice.
Will operational grants received after 1 October 2010 include the increased GST rate?
Yes. There will be additional funding to accommodate the increase. The Ministry of Education emailed schools during mid July 2010 confirming this.
The Ministry is finalising the detailed mechanism for this increase. It is expected that the initial grant transfer will be made, followed by a further supplementary payment of the additional 2.5% (to account for the GST increase).
School controls and systems
There are many other points you’ll need to consider before the GST increase.
- What GST basis are you on? Invoice, cash or hybrid.
- How often do you file GST returns? What GST period does your return cover? Monthly, bi-monthly, six monthly.
- Is this a suitable time to change your GST return period?
- Does your return span the 1 October GST rate change and therefore you need to fill out a GST transitional return?
Depending on your answers to the above, you will also need to consider:
- How this affects your current stock and if you will change the GST rate for stationery, uniforms, tuck shop items, etc.
- You may consider double pricing your stock ie have stock carrying two prices. A shirt has two prices: 12.5% GST (applied before 30 September) and a price at 15% GST ( applied after 1 October). This will save you from having to re-price all your stock on 30 September.
- If you have invoiced for any upcoming activities (school camps, plays, etc), will parents pay the additional GST rate and how will you inform them?
- Do you have any international students at your school? Have they paid for the 2011 calendar year and will you be issuing an amended invoice?
- Have you considered the impact on your invoicing if you offer student accommodation?
- Have you been working closely with your accounting service provider on the GST change and these issues?
- Will the GST rate currently in your system need updating by a specialist or can your staff do it?
- Can your system hold the two rates for a period of time as recommended?
- Do you need to change anything on your brochures, website, stationery list, etc.
Further information is available from Ministry of Education regional financial advisors, and changes at Inland Revenue Department
- 2010 GST rate change guide (GST 106) covers the transition, tips on adjusting your accounting systems and completing the transitional forms.
- GST transitional return (GST 104A) and the GST rate change adjustment calculation sheet (GST 105) at ird.govt.nz/changes. Search for the GST form numbers.
- The IRD website will have online demonstrations of the forms, from 01 October 2010. These demonstrations will take you through examples and display the forms being filled out.