The new National government was elected within New Zealand, one of the first things they altered included their Goods and Services Tax (GST) rate. Since 1989, the value-added tax rate for New Zealand had been 12.5 percent. In the first week of October 2010, the tax was increased to 15%.
It wasn't an enormous change considering that the cost of goods increased all-in by 2.22 percent. The most significant challenge for people and businesses who manage budgets is the shift to how the contents were calculated. The traditional method of adding GST to the price was to divide the cost by eight in order to calculate the 12.5 percent, after which you multiply the amount by 9 to arrive at the price that was then calculated.
Reverse Charge Mechanism Under GST.
The reason we did this is that we divided it by 8 and then multiplied it by 9 instead of just multiplying your price with 1.125 for the addition of 12.5 percent is because using the usual calculation method for including the GST and determining the GST contents of a GST inclusive price makes things simpler overall. To find the GST contents of the price, you simply needed to divide the price by 9 in order to discover that GST content. If $100 was the end price you were looking to determine the tax amount you paid, you can simply take the $100 and divide the sum by 9 to come up with $11.11. If you wanted to add GST to the unit that originally cost $100 you'd need to divide the cost by 8, to come up with $12.50 Then you would multiply it by 9 to arrive at the price that is now $112.50.Why would you want to divide it by 9? If you consider GST as an individual slice of the pie, it becomes much simpler to comprehend.
Before GST is added, your pie was the equivalent of 8 pieces (of 12.5 percent) each. Because GST added an additional 12.5 percent on top of the price you paid You could think of the price as being one slice higher than the pie that was originally purchased. At the end, you're left with nine slices of pie, which was what was the "final price". Therefore, when looking at what was the GST of a cost in the past, all you needed to do was to look at the price of the extra slice or determine what the 1/9th was. If the final cost was $100 and we were aware that there were 9 slices of pie that totalled $100, in order to determine the GST content, we'd divide $100 by nine to come up with $11.11 which is the GST portion in the cost. Before the introduction of GST calculation, calculating GST was simple.
As the increase was introduced this year, the toughest aspect of comprehending GST was understanding that the 15% figure was the "uneven" figure. If you imagine the pie as a scenario it is impossible to divide the pie into 15 segments without leaving some. This is why the calculation of 15% of something was more confusing than the majority of people originally believed. When I spoke to attendees at tax workshops, most participants believed that the correct method to calculate it is to divide the figure by 0.15 to get 15 percent of the amount. If you use the example of $100 and multiply it by 0.15 you will get $15. There are several reasons why this solution is not correct.
The $100 figure is the final number, which means that it includes each figure as well as the GST. Because the GST is part of the initial figure, it's made up of the following. Pre GST Price + (15% of Pre GST Price) = GST Inclusive Price. We will now examine the reason why the value of 15% is more difficult to determine:
Why is the 15% more difficult to calculate?
1. Since it doesn't require division by a simple number
2. Since we're not working in "whole" segments of the pie
3. Since the formula isn't so easy for you to keep in mind because it isn't as simple to remember "divide by 9"
While 12.5 percent is equal to 1/8th and 15 percent can be described as 1/6.66th of a number. This means that we must employ a different formula to determine what is the GST content. The process of adding GST to an existing GST price is fairly simple, however the trick is finding the GST amount to be GST inclusive. It helps to select an initial figure that the majority of people have heard like $100. Another reason is that since the number is 100, the figures return are the percentages that correspond to every value. If you take a look at the examples we've used in the past, we observe that when we use 12.5 percent as GST you will see the following.
1. $100 is the final amount and, therefore, includes nine slices (8 original plus 1 GST)
2. Since $100 is made up of the equivalent of 9 pie slices, when we multiply $100 with 9, we determine that the GST value.
3. $100 x 9 equals $11.111 which is the GST Content of a $100 note.
4. When we look at this, we can observe that GST was 11.11 percent of the total cost during the previous time.
The 15 Example of 15. There aren't any slices of pie we can choose from and we need to use a new formula. By using the same amount of $100 as an after GST price, we can determine that there is that price as the basis amount (before GST) and then the GST amount of that price. To determine the GST content, we apply an equation like this:
(* is multiplied *, / is divising)
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(FINAL VALUE * 3) /23
($100*3) / 23
($300) / 23 = $13.04
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In this example, we can see when you have the post GST price of $100, there is an overall GST price of $13.04 so that GST is 13.04 per cent of the total cost. This is very unlike the 15 percent that people were thinking. I've written a series of guides to locate the GST content as well as ways to include GST in a figure. These are available. We will first explore how to include GST:
When you look at the above model with a very simple amount of $100, it's simple to bypass the formula and simply add 15% of the value since you knew that the 15 percent of $100 is $15. Even for slightly more complicated figures, it's not difficult to figure out the amount of GST you need to add to your price to ensure that the price is GST inclusive. This is the easiest aspect of GST but the second step of determining the GST contents of the GST included price will be the most difficult part. But you don't need to worry because we've simplified the calculations to make it easy.
It is evident that the determination of the contents of a price that is GST inclusive is no longer as difficult as you believed. You can now determine your GST without worrying regarding whether or not your calculation is accurate. I hope you've discovered this guide helpful and you are secure regarding GST calculations in the near future. The best way to calculate GST is, to begin with, numbers you are able to use to ensure that you are getting the basics right, and then begin to work on the actual calculations you will need to make. This will decrease the rate of error and make the job appear more simple. The next webpage you'll find are a few questions, so you can practice. The answers are listed at the bottom of the page, so you can verify whether you're on the right track. Be sure to adhere to the equation and remain easy.
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