cheap lenses australia

GST rate increase – Is it worthwhile to pay council rates instalments in advance?

I recently received an invoice from the Wellington City Council for the first quarterly rates instalment for the 2010/2011 year. Enclosed with the invoice was a slip advising of the upcoming increase in GST rate and suggesting that ratepayers could save themselves some money by paying the remaining three rates instalments before 1 October if they can afford to do so. We thought it would be interesting to put this to the test with some back-of-the-envelope calculations.

My rough calculations suggest that any GST saved from paying the instalments upfront is likely to be outweighed by the additional interest costs of funding that payment. For example, a person paying 6% interest on their home loan and with an annual rates bill of $2,000 (exclusive of GST) would save $37.50 in GST by paying the remaining instalments in advance, but this saving is less than half the cost of funding that payment from now until the respective instalment dates (approximately $85 by my calculations). The result for someone who is mortgage free would be better but, even then, the GST saving is offset by the opportunity cost associated with the interest forgone on the sum paid in advance. There seems to be little benefit in paying the remaining rates instalments early, unless the Council is prepared to offer ratepayers a discount for doing so.

Similar considerations should also apply in determining whether to purchase big-ticket items prior to 1 October. The key difference between such items and council rates, however, is that the purchaser would at least obtain the (non taxable) benefit of having the use of the items from an earlier time.

No Responses

Be the first to leave a comment!

Write a Comment

Take a moment to comment and tell us what you think. Some basic HTML is allowed for formatting.

*

Recent comments

  • Peter: When you have more than one job all your income is added up and you pay tax on the total income amount. For...
  • Joanne Martin: Hi Would you be able to email me to discuss a small company that is an LTC which I need some advice on...
  • Rizwana Saheed: You are on the right track that there is an exemption when employees work overtime but whether or not...
  • bryan: as a group of employees we get paid meal money if we exceed 11hrs on any day. Employer says he wants to tax...
  • linda: My mother is 94 and has dementia. With govt assisted carers she is still living in a home gifted within the...
  • Sharon: Hi Daniel, Can you please advise how owners of a profit-making LTC pay themselves? The owners used to pay...
  • Another Anne: My Dad is in care on full subsidy. I am EPOA. Are we able to gift some money to my brother in UK so...
  • Twagilayesu Isaya: I agree with the author of this article that Inland Revenue Department need to provide clear...
  • Quinn: Hi. I would like some clarification regarding the valuation of the investments component of the owners basis...
  • QROPS Pensions: Interesting piece of writing, you always write the most useful content & TalkTax is no exception...

Upcoming Events

  • No events.

Poll

In the past 12 months, do you think the amount of IRD investigations being undertaken has?

View Results

Loading ... Loading ...

Authors

    For the moment, we have no authors