Chch baker wins case

Press, 24 September 1987, Page 28

Chch baker wins case

PA Wellington A Christchurch baker has won his case to be able to pay Goods and Services Tax (GST) using cash accounting rather than accrual accounting. His case is one of the first GST decisions by the Taxation Review Authority and follows a decision in August .in which a farmer won a similar case. Most businesses account for GST on an invoice basis, that is, they pay the IRD for GST when goods are supplied and invoiced rather than when they are actually paid for by their customers. Section 19(1) of the Goods and Services Tax Act says every registered person shall account for GST on an “invoice basis”, unless they are able to take advantage of any of the exceptions listed in section 19(2)(a)(b) or (c). The baker had a gross turnover of over $500,000 a year and was therefore barred from automatically filing his GST returns on a payments basis by section 19 of the Act But section 19(2) (c) allows the Commissioner the discretion to make exceptions and allow GST to be paid on a payments basis, even if turnover is more than $500,000, where the “nature, volume, and value of taxable supplies” makes it appropriate for the payments basis to be used. The baker had unsuccessfully applied to the IRD for that discretion to be exercised kLhis favour, and had appealed to the Taxation Review Authority.

The baker ran a takeaway food shop and a bakery which supplied goods to a number of retail outlets. The turnover was $600,000 to $700,000 and about 60 per cent of the turnover consisted of cash sales. The balance was invoice sales paid within a week. About 25,000 items were produced and sold each week. The regular wholesale customers numbered 50 to 60 and made daily orders and were billed weekly. There was a manual debtors system consisting of an invoice book with carbon copies which listed the weekly supplies made to customers. Each order was entered into the invoice book and a carbon copy made and given to the customer. When the invoice was paid the original written invoice was tom out, noted as paid and put in a file for paid invoices. To obtain the total of debtors outstanding at any one time required the ad-

dition of all the original pages remaining in the invoice book. But the baker’s accountant pointed out that while it was easy to obtain a debtor balance at the end of any two monthly GST accounting period, It became difficult to get those figures later. This was because original invoices paid after the relevant period had been placed in the “paid” file in alphabetical order and not in date of payment sequence. The baker submitted that the cost of compliance in converting to an accrual system would be unreasonable. He already spent four hours each two month period completing his GST return, and his accountant said he would have to spend about eight hours if he had to make returns on an accrual basis. While admitting it was a border line case, Judge P. F. Barber said the business was effectively a cash business with a high volume of low value goods being sold. Consequently the business satisfied the guidelines which the IRD said it should follow when exercising its discretion to make exceptions under section 19(2) (c) of the Act, as set out in the IRD's own Circular No. 30 of June, 1986. The cost of compliance would not be “unreasonably high, but is of some I significance and involves I inconvenience or a time burden for a busy pro- I prietor,” Judge Barber. n said in allowing the ap- || peal. I