Advance payment for services not rendered yet

Advance payment for services not rendered yet is not subject to GST. GST will only be payable once services are rendered and the advance payment is recognised as income.

Eg : A member of a recreational club may pay his membership subscription 10 years in advance. GST is only payable on the part of advance payment where the membership subscription is due. If membership subscription is RM10,000 for 10 years, on the first year of the membership only RM1,000 is recognised as income and hence GST is payable on RM1,000.

Amount of GST payable
= RM1,000 x 6/100
= RM60

The club should collect the GST portion during collection of advance payment to avoid having to bear the GST cost.

Accounting Entry on advance payment and GST

Dr Bank RM10,600
Cr Advance Payment RM10,600

When 1st year membership is due

Dr Advance Payment RM1,060
Cr Membership Subscription RM1,000
Cr GST Payable RM60

The statement above doesn't seem right.

Section 11 (4) of the GST Act 2014 specifically mentions that if an invoice is issued or a payment is received before the services are performed, supply is treated as taking place at the time the invoice is issued or the payment is received, whichever is the earlier.

Totally agreed with joseph

Hi All,

If sales order issued and deposit received upon order confirmation, subsequently issue tax invoice when deliver goods and collect balance payment (goods delivery might take few months later from the date of sales order). When is the time of supply? Deposit received date or tax invoice date?

Thank you.

Section 11 (4) of the GST Act 2014:
Where an invoice is issued or payment received before delivery of goods, the supply to the extent covered by the invoice or payment shall be treated as taking place when the invoice is issued or payment is received, whichever is earlier.

Example:
RM10,000 = Advance payment received on 01/05/15
RM100,000 = Tax invoice issued on 01/10/15 upon delivery of goods on same day

GST is chargeable on RM10,000 on 01/05/15 and RM90,000 on 01/10/15.

Would like to clarify about advance payment. Our trainer inform us that if we didnt received any tax invoice for the deposit we no need to account for advance payment till we received the original tax invoice only we acoounted GST. Is this correct?

Are you paying the advance payment or are you receiving the advance payment?

we are paying advance payment. normal our purchases are need to pay 50% once confirm order but supplier wont issued any invoice to us, payment just base on quatation

Without a tax invoice or an official receipt with all the prescribed particulars of a tax invoice, you cannot claim input tax on the advance payment you made.

we are beauty line services, normally we sold package for the treatment.

1) customer had fully paid the treatment fee on year 2013 for 10 section treatment but end of Mar'14 she just done 5/10 treatment. The balanace of 5 treatment need to account for GST?

2) Normal we supply product to branches as consigment, once branch top up the sales qty only we issued invoice to branches. Are this acceptable for current GST?

3) branches sales normal used of credit card, the fund will received on behalf by HQ, but due to each transaction which incurred of GSt under HQ payee. this case can HQ claim input tax as they expenses or need to issued tax invoice to charge branch branch for the reimbursement?

1) You have to account for GST and you should absorb the GST.

For 2 & 3, please clarify what do you mean by branches? These are third party beauty salons or are the branches all belonging to your company?

2 and 3 are branches belonging to same share holder but registed to difference company name & gst registration no.

Okay, your branches mean different business entities.

2) Yes, you can do that, if that top-up means sales made at the branches. Do remember any products unsold for 12 months, you have to bill the branches (Section 11(2)(c) of the GST Act 2014).

3) Are you referring to credit card expenses or are you referring to money you received on behalf of branches because the credit card terminals belong to your company?

If credit card expenses, you can claim input tax and bill back (issue tax invoice) to branches as reimbursement (value + 6% GST). If branches are GST-registered, they can claim the GST on the credit card charges.

The money received on behalf of the branches is not a supply. I believe you will set-off against their purchases from you or you refund to them. Continue the same practice.