Watch out you’re not overcharged GST on invoices received before 1 October.

With only 1 week to go until the GST rate increases to 15% it seems some businesses still don’t understand when to apply the new rate.

In this morning’s mail I received a renewal notice and tax invoice for an insurance policy I have. The policy is for a 12 month period and requires the premium to be paid up front at the beginning of the insurance period.

The tax invoice itemises the premium amount plus the fire service levy and then adds 15% GST.

Now that is simply incorrect. The GST time of supply on this particular transaction has been triggered by the insurance company sending me the invoice. Since that has happened before 1 October the correct GST rate to charge is 12.5%.

The same principle applies for rates or memberships. If the whole amount is invoiced at the start of the period the GST is calculated based on the rate applicable when the invoice is issued.

Sure there are special rules for contracts which provide for periodic (say monthly) payments during the year and the GST rate might increase for those payments which are made after 1 October. However, that’s not always the case, especially if the whole amount is invoiced at the start of the contract and there is no agreement to pay in instalments.

I’m going to be phoning my insurance company on Monday to tell them I have no intention of paying the 15% GST they have purported to charge me on the renewal.

You don’t have to be a maths whizz to confirm whether the GST has been calculated correctly. If the invoice shows the amount payable excluding GST then multiply by 0.125 to calculate the GST amount which needs to be added. To double check, the GST portion should be 1/9th of the GST inclusive gross price.

Generally, I’d recommend querying any invoice dated before 1 October which applies GST at the 15% rate. In most cases that is likely to be incorrect.


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