When Cash is King, consider checking your approach to GST

With financial times getting tougher, make cashflow easier by considering these 10 simple ways that GST can help improve your cashflow.

1. Acceleration of input tax credits

For those on the invoice basis, if “taxable supply information” (previously “tax invoices” - see recent changes, in this article terms taxable supply information and invoices are interchangeable) is received after the accounting system is closed for the current GST period but relates to a supply in that GST period, input tax can still be claimed in the current period’s GST return, it does not have to be claimed in the later period. This can allow a one-off permanent cash flow injection. For example, if the GST time of supply was triggered in April, but the invoice details were only received in May, the GST can still be claimed in April.

When implementing this it is important to track which input tax is claimed ‘early’ to prevent double claiming.

2. Earlier Filing for Refund Returns

Where a GST return is in a refund position, cash can be freed up by filing the GST return as soon as possible after the period ends rather than waiting for the due date.

If being in a refund position is not usual for your business, having a few lines explaining why the return is a refund and attaching any supporting documents in myIR can help to speed up Inland Revenue processing.

If you are in a GST refund position and Inland Revenue sends a “section 46 request”, please contact a Deloitte Indirect Tax team member before responding. We can help streamline the process and increase the speed at which your refund is released. Above all, don’t just ignore the request.

3. GST Periods/Basis

Periods

If your GST returns are in a payable position, consider whether you can move to less frequent filing, reducing the number of payments due and increasing the time between payments.

If your returns are in a refund position, a more frequent filing frequency will assist with allowing you to receive the refunds sooner.

Payments Basis

If you are struggling with customers being unable to pay their accounts, moving to the payments basis can help. Under the payments basis, output tax is generally not due to be returned/paid to Inland Revenue until you have received payment from your customers.

However, equally, you need to have paid your suppliers to claim an input tax deduction. The payments basis is only available for taxpayers with sales under $2million.

4. Input Tax Support

Tax invoices are no longer required to support input tax claims, instead, taxable supply information is required. Taxable supply information can be across multiple documents. As this is a new requirement ensure your accounts payable team is aware of the changes and not denying input tax claims because of the lack of tax invoices if you otherwise have the taxable supply information in another form.

5. Bad debts

If certain criteria are met it is possible to obtain a deduction for the GST on bad debts, i.e., debts that are objectively bad and have been written off for accounting purposes. It is best practice to write off bad debts throughout the year, rather than just waiting for the end of the year.

6. Disputed amounts (invoice basis)

Where a supplier’s invoice to you is being disputed, it is possible to claim the full amount of GST included in the taxable supply information. Any adjustments will be made in a future GST period if there is ultimately a reduction in the amount of the invoice.

7. GST Grouping

Transactions between GST group members are ignored when completing the GST return. Forming a GST group can therefore give rise to a cashflow benefit where the members in the GST group are filing returns on differing frequencies or can help ‘smooth’ GST where one entity is in a payable position, and another is in a refund position.

There are specific conditions that must be met to allow GST grouping and consideration needs to be given to the benefits and disadvantages before an election to form a GST Group is made.

8. Entities that make exempt supplies

If you make exempt supplies (including holding shares in some instances) and do not currently have a B2B election you should file one. This election allows some exempt supplies to businesses to be turned into zero-rated supplies, allowing input tax to be claimed.

Now is also a great time to review apportionment calculations to maximise GST recovery.

9. GST offsets on asset transfers

Where an asset transfer takes place that does not include land, the purchaser can transfer the GST credit on the purchase to the vendor’s GST account to reduce the cash needed. There are some steps involved in this process, but it can be a great cashflow saving approach.

10. Filing GST Returns and Making Payments:

If you think you may need to defer your GST payment to Inland Revenue (or other tax payments) you should contact Inland Revenue and proactively manage this through an instalment arrangement.

If you would like more information or assistance implementing any of the suggestions above, please contact a member of the Deloitte Indirect Tax team or your usual Deloitte advisor.

May 2023 - Tax Alerts