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GST heat goes on internet sales

Debate is turning into action over taxing internet sales.

The Australian Treasurer told media at the Council on Federal Financial Relations Meeting in Canberra on 9 April his Government will require overseas companies selling intangibles into Australia to register and pay GST on their sales there. This includes companies like Netflix and many others which are clearly in the Australian Government’s sights.

Treasurer Hockey says the States in Australia have agreed to this in principle and they intend working as quickly as possible to achieve it. He also said it would make sense to apply the same rules to goods sold over the internet below the import exempt threshold of $1,000. That will be welcome news for Australian retailers.

http://jbh.ministers.treasury.gov.au/transcript/075-2015/

Meanwhile, in New Zealand, our Government maintains the line it will await the OECD special working party on digital commerce (due to release a further report later this year) before acting and there is no current intention to review the low value import threshold here for goods.

NZ retailers still have their work cut out to persuade our Government to act sooner and follow the EU and South Africa.

On 13 April Retail NZ and Bookseller NZ launched an #eFairnessNZ campaign seeking urgent action on this. They say it is hurting retailers all over New Zealand. The campaign is being run on Facebook, Twitter and Instagram using the hashtag #eFairnessNZ.

www.retail.kiwi/eFairnessNZ

While the regimes in place in South Africa and the EU have significant practical and enforcement issues it does appear they are collecting revenue. We won’t know how they are impacting consumer behaviour for another few months but it certainly doesn’t look like the sky has fallen on them.

I’d say this is an inevitability but we still are some way away from the ideal technological solution we need.

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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VAT and online sales

This is a very good item on the wider business implications of proposed changes in Europe to the VAT treatment of online digital media sales.

http://performance.ey.com/2014/02/20/vat-change-online-sales-just-tax-concern/

Cheers

Iain

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Are you ready for the 1st of April 2014?

Change to tax law is as certain as tax itself.

The 1st of April is a favourite of governments around the world for ushering in tax changes.

Here’s a snippet of some changes that are coming into force in GST, VAT and other indirect taxes on 1 April:

Albania – Supplies of medical services and medicines will be exempt from VAT, alcohol and tobacco excise taxes will rise and energy drinks will become subject to excise tax.

Cook Islands – The standard VAT rate will increase from 12.5% to 15% and import charges on some foodstuffs will reduce to zero.

France – CO2 content will become the basis for calculating excise taxes on energy products.

Japan – The rate of Consumption Tax will increase from 5% to 8%.

Lithuania – Excise duty on alcohol products will increase.

New Zealand – Non-residents will be able to claim refunds of GST for New Zealand business expenses under an enhanced registration system.

South Africa – Foreign suppliers of electronic services to residents in South Africa will have to register for VAT and charge South African VAT.

So, a busy day for indirect tax changes. Don’t be fooled!

The South African measure is especially interesting and deserves more comment in a separate post.

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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Starting a new business?

If you’re thinking about starting a new business be careful how much you spend on “preparatory and exploratory” work.

An Australian tax court has just concluded that a couple could not claim back GST on “preparatory and exploratory” expenditure because their business had not yet come into existence.

The couple had bought a rural property they wanted to use for an eco-tourism business. They spent money preparing a business plan, registered a business name, consulted an accountant and lodged a development application with the local council.

However, because they had not yet produced any income from the property the court said their business had not started and they couldn’t claim back the GST.

Could a similar result occur in New Zealand? Yes it could. A person cannot be registered for GST in New Zealand unless they carry on a taxable activity. This is a question of fact and courts will look at the intention of the taxpayer to supply goods and services for money.

Where there is a considerable time difference between incurring preparatory and exploratory expenses and actually earning revenue there is a risk the IRD could refuse GST registration and GST claims for those expenses.

In the Australian case the couple bought the land in 2003 and by 2012 had still not actually derived any income. That’s probably at the extreme end of the scale. Nevertheless there is a real risk for people starting businesses dependent on Resource Management Act approvals because it can be years before they are even allowed to start work developing their property.

Be careful out there.

cheers

Iain

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NZ tax department reveals its compliance focus

Our new tax Commissioner has just released a document outlining her department’s key compliance programmes for 2012/13.

http://www.ird.govt.nz/resources/6/6/661d18004c5fb8aea1cde57bdeadb8e8/our-compliance-focus-2012.pdf?CACHEID=661d18004c5fb8aea1cde57bdeadb8e8

The 32 page document discusses many risks tax investigators have identified for special attention.

In the GST area the focus is very much on the hidden (“black” or “cash”) economy where some recent wins have already been chalked up by the Commissioner. They’re looking for the traders who take cash and keep it outside of their business records so that it is not declared in tax returns.

Property transactions continue to be a big GST focus, although, as they point out in the document, many concerns have largely been resolved by the new requirement to “zero rate” most land transactions between GST registered entities.

There’s a strong message for central and local government entities that they can expect close scrutiny of their GST systems and processes. The document points to the restructuring and reorganisation in government bodies throughout the country and concludes there are added risks for GST compliance where implementation is lacking.  

If taxpayers believe they may be one of those targeted by these programmes the suggestion from the Department is that they review their own systems now and make sure they are compliant. If there are errors it’s better to deal with these up front with the Department before they come knocking on the door.

With the back drop of continuing pressure on the Government’s tax take and a few recent wins in the courts there’s little doubt in my mind tax collectors have a mandate for ongoing focus in these areas.

 

Iain

 

 

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Who’s making submissions?

I’m interested in hearing from anyone who is considering making a submission in response to the latest discussion document from Inland Revenue on GST.

They are looking for feedback on the suggestion of loosening the rules for overseas businesses wanting to recover GST on business related expenses they incur in New Zealand.

It can be difficult for a business to get GST back on NZ expenses if they don’t have a physical presence in New Zealand. Inland Revenue recognise this and have put forward a couple of options to solve the problem. One option is a relaxed GST registration process and the other a refund claim procedure. The registration option reflects how the Australians deal with the issue and the refund claim procedure is essentially how the EU countries approach it.

Personally I’m in favour of the registration option but am interested in hearing from others on their views.

If the proposal becomes law we’re told it means the Government will lose some revenue. Clearly that’s not a particularly appealing notion at the moment if you’re a politician so it will be important that those who support the proposal make their support known. Otherwise it will just be another good idea consigned to the bottom of the pile.

Of course this concession for business raises again the question of whether it’s time for NZ to match the rest of the VAT world and put in place a refund scheme for tourists. Small steps………….

Iain

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Penny and Hooper decision carries GST lessons.

The Supreme Court ruled yesterday that orthopaedic surgeons Ian Penny and Gary Hooper avoided tax when they diverted income from their practices to lower tax rate entities such as companies and trusts. A significant issue was the below market salaries they paid themselves.

While it is an income tax case the Penny and Hooper decision is a reminder generally that those operating businesses through closely held entities need to pay careful attention to their tax obligations, including GST.

The Supreme Court found against the taxpayers even though the income tax legislation does not expressly state shareholders must be paid market salaries by the companies they control.

The GST legislation on the other hand does have express provisions requiring market prices to be paid when goods and services are exchanged between related parties. These provisions impact all closely held companies and trading trusts which carry on a GST taxable activity.

A GST registered company or trust which makes any of its property available to shareholders or beneficiaries is probably required to pay GST to Inland Revenue based on the market value of that property.

Similarly, a person providing services to a related Trust or Company may find they have a requirement under the GST legislation to register for GST and charge GST on the market value of the services they provide. Where the Trust or Company does not conduct a GST taxable activity [perhaps they are a residential landlord] this is a permanent GST impost.

It might be stretching the precedential value of the Supreme Court’s decision to claim it sets out principles which apply to GST. Nevertheless, it at least serves as a warning to all closely held trading entities that you need to be just as vigilant in your dealings with related parties under the GST law [and potentially more so] as you do for income tax purposes.

Iain

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Capital gains tax

I know it’s wishful thinking to expect real analysis in political debates but, honestly, whether it’s time to introduce a capital gains tax in New Zealand is an issue which deserves more than the usual ping pong game of political rhetoric.

The refrain of the most vocal advocates is how a CGT will discourage real estate investment and encourage investment in other sectors where capital is much needed. The refrain of the most vocal opponents seems to be “it won’t collect as much as its supporters say it will”.

New Zealand’s current tax system exempts most capital gains from tax. Capital gains from investments in shares, businesses, real estate, art work, gold, jewellery, and antiques generally are not taxed. To argue this state of affairs is responsible for a skew in favour of investment in real estate and away from the sharemarket, for example, hardly seems to stack up. In fact, there is a group of rules in our existing tax laws which are aimed solely at taxing some capital gains from real estate investment. No such rules exist for investments in shares, businesses, gold, art work or antiques. If anything, our current tax system discourages investment in real estate when compared to how it treats other capital investments.

The rumoured capital gains tax apparently is not intended to apply only to real estate. Sensibly it’s proposed to apply to gains from selling shares, businesses, art work, gold, jewellery and antiques (and any other appreciating asset). So quite how it’s going to suddenly change the behaviour of real estate investors is beyond me.

I think the focus on real estate is unhelpful when discussing whether we should have a capital gains tax here. Surely most people are more likely to be influenced in their investment decisions by their perception of likely return rather than tax? It seems to me the absence of a broad based capital gains tax hasn’t driven investment behaviour into a particular asset class any more than the presence of such a tax will.

This is not a real estate versus shares debate. When we decide whether we should have a capital gains tax we need to consider fairness, efficiency of the tax system, economic benefits and effectiveness.

The question of how much a capital gains tax will raise is certainly relevant to whether it is worth the administration costs
of implementation but to a great extent is a design issue when considering the effectiveness of the tax.

Iain