Removal of 5 cent coins from circulation - effect on GST tax invoices

From 31 July 2006 5 cent coins will be removed from circulation. This will mean that for cash transactions retailers will be rounding prices to the nearest 10 cents. An issue has been identified where a supplier issues an invoice and then the recipient pays in cash in respect of that invoice. In some circumstances this will mean, as a result of rounding, the amount of tax charged in a transaction may alter. If a tax invoice has previously been issued, section 25(3) of the Goods and Services Tax Act 1985 would require that a debit or credit note be issued in respect of this adjustment.

For example: A person receives a monthly statement/tax invoice from a retailer in respect of supplies for the amount of $25.85 (inclusive of GST). If they were to pay this account with cash the supplier will need to adjust the consideration up or down to either $25.80 or $25.90 (depending on their rounding policy.) The GST included in the transaction at $25.85 is $2.87. At $25.80 it is also $2.87. However at $25.90 the amount of GST increases to $2.88.

In the above example, because rounding up would mean the amount of GST changes section 25(3) would require the supplier to issue a debit note showing the change to the consideration. However, section 25(3B) provides the Commissioner with a discretion to not require a credit or debit note to be issued where the Commissioner is satisfied there are or will be sufficient other records available to establish the particulars of any supply (or class of supply) and that it would be impractical to require a credit or debit note to be issued.

It has been determined that, under the terms of section 25(3B), a debit or credit note need not be issued where the consideration for a transaction changes due to the effects of rounding necessitated by the withdrawal of 5 cent coins from circulation. This is because usual practice is to show the effects of rounding on the receipt issued by the supplier.

While a debit or credit note need not be issued as a result of rounding, the adjusted amount of tax is to be included in the appropriate GST return. In the example above, the supplier needs to include output tax of $2.88.