The Auckland City Council is encouraging ratepayers to pay their 2010/2011 rates before 1 October rather than in instalments spread over the whole year. This is because instalments paid after 1 October will be subject to GST at the new 15% rate whereas if they pay before 1 October the old 12.5% rate applies.

The technical issue here is the special “time of supply” rule which determines when GST applies to instalment arrangements. If the contract is for the provision of services GST is accounted for when each instalment is paid or is due, whichever is earlier. So, for someone under an instalment arrangement spanning 1 October the GST applying to instalments paid after that date will be 15%. What the Auckland City Council is getting at is that it’s possible to take advantage of the old GST rate by paying those instalments before 1 October instead of after.

This obviously could apply to other arrangements. For example, rental or hire agreements and possibly insurance.

What we don’t know is where the IRD will draw the line on what is acceptable behaviour and what is tax avoidance, see earlier post regarding the IRD’s cautionary statement that “excessive” cases of pre-invoicing or pre-paying may be tax avoidance.


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