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Australia leads NZ 2 – 0

The Australian Government looks likely to change its GST treatment of digital currencies. In NZ we’re left wondering what our Government’s position is.

This is the second time in about as many weeks Australia has taken steps to address a well acknowledged GST issue. Just a few days ago we learnt it is now almost inevitable the low value import threshold in Australia will be reduced, perhaps even eliminated; see my 22 July post.

And on 4 August the Senate Standing Committee on Economics released its report on digital currencies. You can find the full report here: http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/Digital_currency/Report

The Committee was asked to consider the tax treatment of digital currencies and the Australian Tax Office’s (ATO) published position.

The report highlights the practical and commercial issues with the current tax treatment. GST is singled out as the most significant. The ATO, rightly in my view, concluded digital currencies are commodities and GST applies to them in the same way it applies to traditional barter arrangements.

As the Committee points out, this leads to double taxation and can be a permanent cost for private consumers when they’re exchanging real currency for digital currency.

The Committee recommends digital currency (like Bitcoin) be treated the same as money for GST purposes and the Government consult with States to consider changing the GST law. This would remove GST from digital currency and resembles the “exempt” treatment adopted in the UK.

I have no doubt the NZ Government (through Inland Revenue) is following this development just as it is the low value import threshold issue. And, there is sense in staying close to Australia and not blazing our own path on these issues. Nevertheless, it would be good to know where IRD stands on digital currencies and GST.

Iain

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Australian Tax Office rules on Bitcoin

The ATO has just issued a ruling on the GST treatment of Bitcoin. Here: http://law.ato.gov.au/atolaw/view.htm?docid=%22GST%2FGSTR20143%2FNAT%2FATO%2F00001%22

In brief:

1. A transfer of bitcoin is a “supply” for GST purposes.
2. Bitcoin is not “money” under the GST legislation.
3. A supply of bitcoin is not a “financial supply”.
4. If bitcoin are supplied in exchange for goods or services the transfer will be treated as a barter.
5. A bitcoin is not a “voucher” for GST purposes.
6. A secondhand goods input credit is not available on the acquisition of bitcoin.

No real surprises there. This had been well signposted.

We await the NZ IRD view which I wouldn’t expect to be much different.

Iain

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12 GST thoughts of Christmas

12 GST thoughts of Christmas:

1. There’s no GST on gifts (so Santa is probably not GST registered).
2. GST registered businesses can claim back the GST on gifts they buy for staff, suppliers and customers.
3. If you buy someone a gift voucher for Christmas it’s quite likely the IRD won’t get any GST until the person redeems it.
4. If the person you gave the voucher to loses it the IRD might never get any GST.
5. On Boxing Day when you go to the shop to return the present you don’t want the retailer will be able to get a refund of GST from the IRD provided they credit you for the return.
6. However, the retailer will have to pay GST if you use the credit to buy something else.
7. The government gets a double whammy of GST when you buy alcohol for your Christmas festivities or petrol for that family road trip (because GST applies to excise taxes on alcohol and fuel).
8. If you order an expensive gift online from overseas for someone in New Zealand and have it delivered directly to them you may be giving them a GST bill because chances are they’ll have to pay GST on the value of the present before they can pick it up from Customs.
9. Businesses are given an automatic extension of time to file their November GST return so they don’t have to file it on 28 December.
10. GST registered businesses with 31 December balance dates which make exempt supplies may have to come back early from their holidays so they can calculate their annual GST adjustment due on 28 January.
11. If you’re booking an overseas holiday and have to take a domestic flight to get to your departure airport it’s best to book both flights together if you want to save the GST on the domestic flight.
12. There’s no GST on gifts but if someone gives you something expensive while overseas you might have to pay GST when you bring it back with you.

Happy Christmas everyone

Iain

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Grant versus fee!

The Woking Museum and Arts and Crafts Centre is a charity set up to “advance the education of the public in local national and international history and arts and crafts”. In 2003 it entered into an agreement with the Woking Borough Council [In the UK] to “provide arts museum and cultural services and a public information service within the Borough of Woking”. The Council agreed to make annual payments to the Centre in return.

The UK Customs and Excise decided the payments made by the Council should not be subject to VAT. They argued the Centre was not a business and the payments were grants rather than “consideration” for supplies of services.

On 10 February 2014 the First Tier Tribunal hearing the case between the Council and the Centre decided the payments are subject to VAT for a number of reasons. Key to the Tribunal’s decision were the following conclusions:

1. The agreement entered into by the parties was a contract for the provision of services by the Centre to the Council and not a grant because there are mutual obligations characteristic of a contract.

2. The services delivered by the Centre provided a direct benefit to the Council in that artefacts of the Council were preserved in the museum by the Centre under an obligation to make space available for them.

3. The arrangements were commercial in nature and the fact the Centre is a charity does not render the relationship un-economic. The purpose and results of an activity are immaterial in determining whether that activity is “economic”.

This sort of analysis is as relevant in NZ as it was to this decision.

There are many organisations providing public benefit services under contracts with local authorities and government bodies. It is not always clear whether those arrangements are subject to GST and in fact we’ve had case law of our own on these sorts of issues.

The crux is how the payment should be treated. Is it a grant or a payment for services? In the end the arrangements and circumstances of each case will determine the outcome but the analysis above should provide some insights into what factors are important.

cheers

Iain

 

 

 

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12 GST thoughts of Christmas

12 GST thoughts of Christmas:

1. There’s no GST on gifts (so Santa is probably not GST registered).
2. GST registered businesses can claim back the GST on gifts they buy for staff, suppliers and customers.
3. If you buy someone a gift voucher for Christmas it’s quite likely the IRD won’t get any GST until the person redeems it.
4. If the person you gave the voucher to loses it the IRD might never get any GST.
5. On Boxing Day when you go to the shop to return the present you don’t want the retailer will be able to get a refund of GST from the IRD provided they credit you for the return.
6. However, the retailer will have to pay GST if you use the credit to buy something else.
7. The government gets a double whammy of GST when you buy alcohol for your Christmas festivities or petrol for that family road trip (because GST applies to excise taxes on alcohol and fuel).
8. If you order an expensive gift online from overseas for someone in New Zealand and have it delivered directly to them you may be giving them a GST bill because chances are they’ll have to pay GST on the value of the present before they can pick it up from Customs.
9. Businesses are given an automatic extension of time to file their November GST return so they don’t have to file it on 28 December.
10. GST registered businesses with 31 December balance dates which make exempt supplies may have to come back early from their holidays so they can calculate their annual GST adjustment due on 28 January.
11. If you’re booking an overseas holiday and have to take a domestic flight to get to your departure airport it’s best to book both flights together if you want to save the GST on the domestic flight.
12. There’s no GST on gifts but if someone gives you something expensive while overseas you might have to pay GST when you bring it back with you.

Happy Christmas everyone

Iain

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GST refund claims: keep it real.

You can’t claim GST back on an expense unless you actually receive whatever it is you are paying for.

That’s the message from the Australian Federal Court in a decision released on 1 November [Professional Admin Service Centres Pty Ltd v FC of T].

In that case the taxpayer agreed to contribute towards a man’s legal costs in return for sharing in any compensation he was awarded if successful. The taxpayer tried to claim the GST back on its payments.

The Court agreed with the Tax Office and refused to allow the GST claim because the taxpayer had no contract with the lawyers and did not actually receive the legal services itself.

The taxpayer had also tried to claim GST back on management fees it was “charged” by a related entity. The Court refused this claim as well because the evidence pointed to the fees being a “sham”. No actual services were provided to the taxpayer and no payment was made by it.

A New Zealand court would probably arrive at the same conclusion.

GST depends a lot on the contractual arrangements entered into by the parties. If goods or services are not actually acquired by the person making the payment it’s unlikely they can claim the GST back on the expense (except in some specific “agency” arrangements).

Much care is required around cost sharing arrangements and charges for “management services”. Make sure the contractual terms are consistent with being able to claim back GST and also make sure what you’re paying for is real!

cheers

Iain

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Emissions units

Receiving emissions units can cost you.

It’s easy to assume GST doesn’t apply to emissions units. The legislation has specific provisions which “zero rate” many supplies of emissions units so perhaps the natural presumption is, you don’t have to worry about GST whenever an emissions unit is involved.

That could be a costly mistake.

Some businesses receive emissions units as part payment for goods or services they supply as part of their business activity. This is a “barter” arrangement; goods or services are exchanged in return for other goods or services, rather than payments of money.

GST applies to barter arrangements just as it would if money were the payment method.

So, if you are a GST registered business and you supply goods or services to someone else who pays you with emissions units, you have to pay GST on the value of the emissions units you receive as payment in the same way you would had your customer paid you in cash. If you don’t you could incur penalties and interest not to mention the extra GST cost you probably didn’t factor in to your cash flows.

Tread carefully.

Iain

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