GST Changes and Impact Assessment


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Whilst on the face of it the GST rate rise seems fairly straightforward, many businesses are just beginning to assess the impact of this rate change on their systems.

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  • Our objective is to provide you with some insight into what you need to be thinking about with the impending GST change and hopefully answer some of your specific questions.We’ve teamed up with our tax partner because we’re not tax specialists, we’re system specialists and can help you implement the strategies that you and your tax experts have come up with.
  • Basically there are more than just ERP systems which need to be thought about in regards to this GST change, you need to review each and every system that either is used for transactions, or reporting to make sure the GST rate is not hard coded.
  • As obvious as it sounds there will be plenty of systems where the rate is hard coded, changing it may not be as easy as you would expect. How many places does it need to be changed.You will need to hold two rates for at least three months after October 1 to deal with returns or other transactions that are rated at 12.5Many systems have default rates held against products, resources or other things that are sold, these would need to be updated. Some other systems may hold the rate against customers or Vendors, again these would need to be updated.Recurring transactions such as rent etc. will need to be updated, potentially new invoices will need to be generated for customersOutstanding transactions will need to be updated, this is potentially the most complicated piece. There will be regulatory impacts, such as whether the transaction shodl be 12.5 or 15% but then potential commercial decision such as shuold you pass the price increase onto your customers, potentiallty this will nto be a single answer as you may need to chack contracts etc to see if GST is stipulated.Microsoft have identified this as a unique New Zealand requirement at least for the Dynamics NAV space. This is definitely an area that needs a tax specialist but the system needs to be able to deal with how to process invoices prepaid or where deposits are held.
  • Quotes not invoiced before October 1 will need to have their GST rate changed, whether or not the Gross price increases would be an internal business decision. So as far as the system is concerned it’s not as simple as adding 2.5%.Similarly Orders not invoiced will need to have their GST rate changed. The difference with orders is that it may have been partially shipped or received or invoiced. What rate should be changed is . But outstanding lines will need to be adjusted, your options here would be to close out that line of the quantity invoiced with the old GST rate and create a new line for the outstanding quantity with the new GST rate. You could also look at closing all orders and recreating them with outstanding amounts and the new GST rate. Your choice of method could depend on how many open orders you have.Purchase Invoices – if you’re receiving purchase invoices from suppliers for November with the incorrect GST rate you are probably best sending it back to them and asking for a correct one.Prepayments – definitely one for the accountants, there seems to be a bit of a grey area, as prepayments can allow the rate to be based on the old rate but there is also a clause that you can’t be doing it just to avoid paying tax.Any recurring transactions will need to be looked at, for contracts each one may need to be reviewed to see if price changes are allowed, either way the GST will need to be adjusted, it just may affect your profit. It will require you to provide your Customers with a new tax invoice, for rent for example, or asking your suppliers for the same.
  • There are potential decision to be made, it’s not black and white about simply adding 2.5%. Will you endorse quotations? Will your vendors? What about partially delivered orders? What about the potential for a rush of orders before October 1, will you have enough inventory, can you provide the services in time? Can you offer prepayments to customers?Will you need new supplier catalogues, will you need to provide your suppliers new catalogues? ……..When can you begin implementing these changes, do you have a test environment ready to test changes, wouldn’t suggest doing this in a live system without testing no matter how simple you think you are.Internal communications, how will staff handle customer queries, will they know how to handle credits that relate to pre OctoberConduct a mock GST cut over and acceptance testing processSome of your customers may not be as knowledgeable about the GST rules so outlining your strategy around price updates, but also giving them the option of receiving/paying for goods before October 1.
  • GST Changes and Impact Assessment

    1. 1. GST System Readiness<br />James Page, Tony Young & Ian Rowe<br />August 2010<br />
    2. 2. Introductions<br />GST rate change<br />Type of systems impacted<br />Requirements of systems<br />Impact on specific transactions<br />What should you be doing<br />Q&A<br />Agenda<br />
    3. 3. Objective<br />Intergen team<br />James Page<br />Tony Young<br />Tax expert<br />Ian Rowe<br />Director PricewaterhouseCoopers<br />Introduction<br />
    4. 4. Intergen TwilightGST Rate Change<br />August 2010<br />
    5. 5. Slide 5<br />GST rate increase<br />GST rate increase: wider context<br />Overview<br />Business issue<br />Rate change per se not hard BUT:<br /><ul><li>Incorrect current practices
    6. 6. Accounting / systems issues</li></ul>20% increase in GST exposures !!!<br />Key objectives:<br />Limit risk<br />Not “out of pocket” (prevent pitfalls)<br /><ul><li>Project team and timeline</li></li></ul><li>Slide 6<br />GST rate increase<br />Main areas for business<br />Overview<br />Pricing / margins<br />Contracts<br />Systems<br />Transitional rules / transactions that straddle 1 October<br />
    7. 7. Slide 7<br />What rate of GST applies?<br />Summary of time of supply rules<br />Single payment rule<br />General rule for supply of goods or services (s 9(1))<br /><ul><li>If “one-off” supply: earlier of invoice issued or payment receivede.g. over the counter sale of goods</li></ul>Invoice (TOS 12.5%)<br />Delivery<br />Payment<br />September<br />October<br />Might be able to rely on date invoice is generated rather than date of issue<br />GST rate increase<br />
    8. 8. Slide 8<br />What rate of GST applies?<br />Summary of time of supply rules<br />Periodic payments for services rule<br />Special rule for services paid over time (s 9(3)(a))<br /><ul><li>If services supplied under agreement for periodic payments: earlier of payment due or receivede.g. annual insurance paid monthly</li></ul>Date of invoice is irrelevant<br />payment due / received (TOS 15%)<br />monthly invoice<br />October<br />September<br />GST rate increase<br />
    9. 9. Slide 9<br />Time of supply – section 9(1) v section 9(3)<br />Practical pitfalls<br /><ul><li>e.g. Advertising services</li></ul>payment<br />invoice<br />September<br />October<br />December<br />November<br />If section 9(3)(a) – applicable GST rate is 15% even if services performed in September<br />Issues<br />Systems set up to account for GST when invoice is issued<br />Potential to under account for GST<br />GST rate increase<br />
    10. 10. Slide 10<br />GST rate increase<br />Price adjustments: transactions spanning rate increase<br />Practical pitfalls<br />Credit note should only be for discounted amount<br />In practice many systems cannot comply with requirements of GST Act<br />Common to reverse original invoice and issue new invoice<br />Technically – only one tax invoice for each supply<br />
    11. 11. Slide 11<br />Price adjustments: transactions spanning rate increase<br />Practical pitfalls<br />Example<br />Consultancy firm charges customer $2,000 (incl GST) and subsequently provides 10% discount<br />Tax invoice issued $222.22 of GST accounted for<br />Original tax invoice reversed $2,000 (incl $222.22 GST)<br />August<br />September<br />November<br />October<br />New tax invoice $1,800 (incl $234.78 GST)<br />GST rate increase<br />
    12. 12. Slide 12<br />GST rate increase<br />Returned goods v faulty goods – what rate applies?<br />Practical pitfalls<br />Faulty goods (exchanged for same goods)<br /><ul><li>Goods purchased pre 1 October and replaced post 1 October
    13. 13. No new sale for GST purposes so 12.5%
    14. 14. Risk that system will calculate GST at 15% on replacement goods – cost to retailer</li></ul>Returned goods (exchanged for something else)<br />Is original sale cancelled or varied?<br />New sale at 15%, variation at 12.5%<br />
    15. 15. Slide 13<br />GST rate increase<br />Section 78 - Can the rate increase be passed on to customers?<br />Practical pitfalls<br /><ul><li>But other legal constraints (Fair Trading Act, express exclusions)
    16. 16. Watch out for periodically renewed agreements
    17. 17. Best to update pricing / agreements etc by 1 October 2010</li></li></ul><li>Slide 14<br />GST rate increase<br />Transitional rules<br />
    18. 18. Customers on Payments basis?<br />Note: Special adjustment required<br />Payments Basis<br />GST rate increase<br />Slide 15<br />
    19. 19. Slide 16<br />GST rate increase<br />Contacts<br />Paul McGonigal<br />Manager<br />09 355 8102<br /><br />Wellington<br />Ian Rowe<br />Director<br />04 462 7274<br /><br />Christchurch<br />Richard Perrett<br />Partner<br />03 374 3013<br /><br />Auckland<br />Eugen Trombitas<br />Partner<br />09 355 8686<br /><br />Gary O’Neill<br />Director<br />09 355 8432<br /><br />Jarred Otto<br />Director<br />09 355 8073<br /><br />
    20. 20. Questions?<br />© 2010 PricewaterhouseCoopers. All rights reserved. “PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. <br />
    21. 21. Systems impact<br />
    22. 22. Types of Systems impacted<br />Web sites<br />Point of Sales systems (POS)<br />Supplier catalogues<br />Reporting systems<br />Project management and accounting sub-ledgers<br />Customer price list data feeds<br />Estimation and quoting systems<br />Employee expense forms<br />Customer relationship management (CRM)<br />Procurement and Purchasing systems<br />Enterprise Resource Planning (ERP)<br />Manual spreadsheets (Cashflow)<br />
    23. 23. System Requirements<br />Able to change GST rate<br />Hold two GST rates<br />Update GST rates on master records such as products<br />Update recurring transactions<br />Update outstanding transactions<br />Prepayments<br />GST labels on documents<br />Ability to perform interim GST returns (depending on customers tax settlement periods)<br />
    24. 24. Impact on different transaction types<br />
    25. 25. What should business be doing?<br /> Take a strategic view<br /> Embark on GST transition project<br />Appoint internal team<br />Engage with technology suppliers<br />Create remedial action plan<br /> Implementing system changes<br /> Internal communications<br /> Mock GST cut-over<br /> Communicating strategy/changes to customers<br />
    26. 26. Systems readiness timelines - Dynamics<br />Actions:<br /><ul><li>Change GST Values in live (NAV Only)
    27. 27. Run Microsoft’s update process where applicable (NAV Only)</li></ul>Actions:<br /><ul><li>Complete all Sept billing with Sept 2010 dates
    28. 28. Complete interim GST return*</li></ul>Actions:<br /><ul><li>Mock GST change over
    29. 29. Update GST values in live (AX only)
    30. 30. Update & release any GST inclusive pricing</li></ul>Actions:<br /><ul><li>Raise support case for GST readiness assessment and support</li></ul>Oct 1st<br />September<br />August<br />Actions:<br /><ul><li>Complete GST Impact assessment across all systems
    31. 31. Finalise remedial action plan for all systems
    32. 32. Intergen to check GST coding structures</li></ul>Actions:<br /><ul><li>Invoice all un-invoiced sales
    33. 33. Complete all purchase invoices</li></ul>* Depending on customers GST return dates. <br /><ul><li>two-monthly return with the period ending 31 October 2010, or
    34. 34. six-monthly return with the period ending:
    35. 35. 31 October 2010
    36. 36. 30 November 2010
    37. 37. 31 December 2010
    38. 38. 31 January 2011
    39. 39. 28 February 2011</li></li></ul><li>How can we help?<br />System readiness check<br />Understand which systems could be impacted by the change in the GST rate. <br />Determine how your systems are affected, regardless of whether they manage transactions or deliver reports. <br />Create a solid foundation upon which to develop a more comprehensive systems-related approach to resolving any GST-related issues. <br />
    40. 40. PWC Contacts<br />Auckland<br />EugenTrombitas<br />Partner<br />09 355 8686<br /><br />Gary O’Neill<br />Director<br />09 355 8432<br /><br />Jarred Otto<br />Director<br />09 355 8073<br /><br />Paul McGonigal<br />Manager<br />09 355 8102<br /><br />Wellington<br />Ian Rowe<br />Director<br />04 462 7274<br /><br />Christchurch<br />Richard Perrett<br />Partner<br />03 374 3013<br /><br />GST rate increase<br />Slide 25<br />
    41. 41. Questions<br />
    42. 42. Thank You<br />