COMLAW301 FC 2020 Example Question

QUESTION

Calamity Jane owns a book shop selling new and second hand books which she purchases
both locally and overseas. She runs the shop in Wellsford as a sole trader under the name
Calamity Jane’s Bookstall. The shop has an annual turnover of $125,000 and Calamity Jane
has registered for GST on an invoice basis filing 2 monthly returns.

During the period 1 December 2018 to 31 January 2019 Calamity Jane makes the following
payments and receipts (all amounts include GST if appropriate).

Payments:

Donation to Hospice(1) $1,200.00

Power $350.00

Telephone $600.00

Advertising $3,360.00

Eftpos fee (2) $500.00

Interest on overdraft $2,500.00

Wages for staff $3,800.00

Airline Flight (3) $3,400.00

Bank fees $180.00

Hire purchase payments (4) $660.00

PO Box annual rental $202.50

Shop rent (5) $4,800.00

Inventory purchases (6) $20,000.00 -- $5000

Rates (on commercial lease) $6,400.00

Osteopath fees (7) $540.00

Recycled books stock (8) $1,000.00

Hair (9) $25.00 - $50

Receipts:

Cash sales $84,000.00

 Credit Sales (10) $11,250.00

$2,000.00 -- $500
Sales to foreign residents (11) $1500 (zero rated)

Bad debt recovered $2,200.00

Interest on bank deposit account $225.00

Sale of car (12) $14,500.00

Small Business start-up Grant (13) $16,000.00

Notes:

(1) The Hospice holds a weekly flea market where Calamity Jane is able to get books for
her shop. The Hospice asks customers for a donation for any items taken and gives a donation
receipt. Technically payments for books that she’s purchasing for her shop. Secondhand
books to her, that can be used for her taxable activity  can claim input tax credit. 15% of
$1200 goes into inpux tax credit. S 3A(2) - about input tax credit relating to secondhand
goods. The hospice don’t have to return the gst from their POV cus donations (no gst charge
on the sales). [top]

(2) Calamity Jane has an Eftpos machine in her shop for customer card transactions. She
pays a monthly fee of $250 for the machine and will ultimately own the machine. For the
purchase of a machine which she pays monthly. Not abt a financial service or transaction. S
3A(1) [top]

(3) Calamity Jane is travelling to Paris in late February 2019 to purchase new stock to sell
in her shop. She has imported books and other items in the past but wants some new suppliers
for European history books. Her flight to Paris has been booked with BA (British Airways)
and paid for using her credit card. travel to paris in late feb but already Paid for flight
beforehand using her credit card. Airline flight overseas at zero-rated and this amount will
not be able to be claimed as input tax credit. S 11(A). [top]

(4) The hire purchase payments relate to an agreement entered into for the purchase of a
special glass cabinet for displaying books installed in the shop. The cabinet was bought on 1
October 2018. The cash price of the cabinet was $3,000 but under the agreement Calamity
Jane is required to pay $330 per month for 10 months. Has agreed to pay interest ($30) while
she pays it off over 10 months. S 9(3)(b). the amount of $3000 for the actual price of the
cabinet would have been claimed in the Oct-Nov period for gst. If u enter into a hire purchase
agreement, Make the claim for input tax credit at the time u enter into the agreement. The
amount she pays month by month do not figure for any kind of purpose for gst later on. [top]

(5) The landlord is registered for GST on an invoice basis. The invoice for $2,400 was
issued on 1 November 2018 covering rent for November, December and January; Calamity
Jane has only paid the rent for November and December. shop rent covering nov-jan.
Received an invoice in the nov period for 2400 with the rest of the rent being invoiced later.
Cannot claim anything this time bcs the invoice of 2400 was issued in nov and she hasn’t got
an invoice for the rest of the rent that is due. The fact we’ve got is that she paid for nov and
December but doesn’t tell when she make the payment. Just assume that she would have
claimed the invoice back in nov when she received the invoice. Don’t include anything in this
period. [top]

(6) Calamity Jane has received invoices in January for $5,000 (which are included in the
total of $20,000) but has only paid $3,500 so far. Invoice basis. S 20(2A) - u must hold an
invoice at the time u make the gst claim. She can claim 5000 (s 9(1)). Remember timing
rules; it’s the earlier of the invoice or the payment. [top]

(7) The osteopath fees relate to Calamity Jane needing medical treatment for an injury
suffered while lifting a glass cabinet. The payment for injuries does not fall into the input tax
credit she’s able to claim. It has no application at all to the GST Act. Not part of taxable
activity. Not subject to gst. [top]

(8) The second hand books were purchased from a non-registered person at a garage sale
who gave Calamity Jane a receipt. She was only required to pay $1000 at the sale and $600
on 31 March 2019. A bit like the donation to the hospice. Second hand goods. Only make a
claim for the $1000 that she’s actually paid in this period. S 3A(2). S 20(3)(A)(ia) - as a
second hand good, can only claim what u’ve got receipt for in that period. [top]

(9) Calamity Jane has her hair permed for the purpose of looking smart in the shop (she
would otherwise not bother as she is a rebel at heart) and gives the hairdresser a valuable
book worth $50 so she only is charged $25. Have to return output for $50 bcs it’s a barter
transaction. Can’t claim for her hair being permed bcs no relation with her taxable activity.
Cannot claim as input tax credit but she will have to return the value of the book ($50) as an
output. Barter is consideration i.e. the exchange of the book for hair. S 6. [top]

(10) Calamity Jane supplies books that she purchases overseas to other retail outlets in
New Zealand. Calamity Jane has invoiced these outlets but has not yet received payment for
the books that she has supplied. Has to return the invoices for gst under s 8(1) and s 9(1).
Even though she hasn’t received any payment yet. [top]

(11) Of this total $500 represents books were bought by a foreign tourist, who will take
them from New Zealand when he returns home in February. The remaining $1,500 were
posted to customers living outside New Zealand. $500 will have to be returned bcs they
haven’t been exported at the time she sold the book. Not able to be zero-rated.
$1500 sold to foreign residents not in NZ. Under s 11A, if the books are going out of the
country straight away, they are zero rated. [top]

(12) Calamity Jane sold her car on 2 January 2019 to a car dealer for $14,500 receiving
payment on the same day. The car was her private vehicle and was not used by her in the
business. [top]

(13) Since Calamity Jane is new to business she applied to the Ministry of Economic
Development for a small business start-up grant that she received in January. Deemed to be a
supply under s 5(6)(d). [top]
Required

Prepare Calamity Jane’s GST return for the period ending 31 January 2019. Include all
relevant sums and exclude any irrelevant items. Briefly explain (using sections or cases
where appropriate) why you have included or excluded those items.

Power, advertising, telephone and PO box annual rental = normal input tax credits under s 3A(1)

Interest on overdraft, bank fees = Financial services (s 3(1)). exempt supplies under s 14. Not subject
to gst. No input tax credit can be claimed

Wages for staff = taxable activity but not included under s 6(3)(b). would not be able to make input
tax claim on wages for the staff.