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Easy fix costs Rugby League Club

Keeping up with your tax obligations can sometimes seem a drag: forms to be filled in, changes to keep abreast of and an incessant focus on the detail.

Mistakes can be costly. A few dollars here and there might be overlooked but get it much more wrong and you can be facing penalties for not taking reasonable care.

The IRD doesn’t get penalised for mistakes however. As long as they get it right eventually, failure to comply with the law is of no consequence.

To quote the Court of Appeal:

Ms Deligiannis accepts that the Commissioner has acted incorrectly in accepting GST returns filed by Mr Cullen in the Society’s name for periods before May 2016. But the Commissioner cannot be estopped by her previous errors of law from performing her statutory obligations to apply the revenue statutes correctly

The case was CIRRM Cullen CA239/2017 [2017] NZCA 448 a decision of the Court of Appeal issued on 12 October 2017.

The IRD won the case and the taxpayer was refused a $15,000 refund even though IRD had originally accepted it was due and payable.

The case is a reminder how costly it can be for taxpayers when they don’t get right some pretty basic housekeeping and how the playing field favours the tax collector.

The Tamaki Rugby League Club set up as an incorporated society under the Incorporated Societies Act in 2006. Over the next ten years the Club was struck off the Incorporated Societies Register and later reinstated twice and placed in liquidation once.

The second time it was struck off was in 2012 and it wasn’t reinstated again until June 2016. So, between 2012 and June 2016 it was operated as an unregistered unincorporated body or organisation.

The Club registered for GST while it was a valid incorporated society. It filed GST returns, made payments, and claimed GST refunds even during periods when it was struck off the Register of Incorporated Societies. IRD accepted these returns, processed them and paid out refunds.

The court case came about after the Club filed a return on 10 June 2016 covering the GST period April/May 2016. During April and May 2016 and at the time the GST return was filed on 10 June the Club was not a properly registered incorporated society. It had been struck off the incorporated societies register.

IRD initially accepted the GST refund was due but was not sure to whom it should be paid because the Club was not a validly registered incorporated society and the return had been filed using the GST registration number for the incorporated society.

IRD issued a notice of assessment reducing the refund from $14,951 to $101. A representative of the Club, Mr Murray, filed a Notice of Proposed Adjustment challenging the assessment and the IRD did not issue a Notice of Response. Mr Cullen started a court case asking for a declaration that the GST return was valid.

The High Court had found in favour of the Club deciding that in essence there was an entity, albeit an unregistered one, which was carrying on the taxable activity of the Club and which was entitled to the refund.

The IRD appealed to the Court of Appeal.

The Court of Appeal decided the Club was registered for GST as an incorporated society and there was no separate GST registered entity that was not an incorporated society. It was irrelevant that there might have been another entity carrying on the taxable activity. The fact was, there was no separate GST registration of any such entity. The Court of Appeal also held Mr Murray had no standing to issue the court case on behalf of the Club as an incorporated society. The IRD’s appeal was allowed and the taxpayer lost.

This would not have ended up this way if the Club had maintained its registered status as an incorporated society and not been struck off. In fact, the Club was reinstated as an incorporated society just a few days after the GST return was filed. However, that did not fix the problem. The IRD still won because the letter of the law said the Club did not exist as an incorporated society at the time it filed the GST return and during the period to which the return related.

So the taxpayer wasn’t allowed a slip up. Even though in substance the Club was conducting its activity just as it had before it was struck off and the IRD had been accepting and processing the returns up until June 2016, the fact was, at that date, technically it was not properly registered as an incorporated society and according to the Court of Appeal could not file a GST return while struck off the Incorporated Societies Register.

I’m a bit surprised there isn’t discussion in the judgment about section 51B of the GST Act. Often the full legal submissions are not included so it’s difficult to know whether the Court was asked to consider this section.

Section 51B provides that a person is treated as a registered person for GST purposes if they are not otherwise registered but supply goods or services representing that GST is charged on those supplies. Under the GST Act a “person” includes an unincorporated body of persons.

If the Club had been collecting subscriptions from members and making other supplies and purporting to charge GST on those supplies while not a valid Society section 51B(1)(a) may have operated so that the Club was “treated” as a registered person for GST purposes. There would still be issues to debate over whether a return filed purportedly using another GST registered person’s GST number is sufficient to amount to a “GST return” on behalf of the Club under section 16 or 18 of the GST Act. It was a return of sorts, even if the GST number on it was not the GST number of the unincorporated Club and, of course, the IRD had been accepting them in the past. But, that doesn’t count unfortunately.

Iain

 

 

 

 

 

 

 

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It wouldn’t happen in New Zealand – or would it?

An Australian court says a taxpayer has not commenced a subdivision activity until they have the funds needed to purchase the land. The costs spent beforehand on planning permits and market valuations were preliminary or preparatory to starting any business.

That’s according to a Melbourne tax court in Bryxl Pty Ltd v FC of T [2015] AATA 89.

This is a big deal for the taxpayer because it means they can’t claim GST credits for the planning and preparatory expenses. Their GST registration was cancelled and they had to pay penalties.

New Zealand’s GST legislation says “anything done in connection with the beginning … of a taxable activity is treated as being carried out in the course of .. the taxable activity.”

That would indicate the Bryxl Pty Ltd might have got a different result in New Zealand.

But not necessarily. In Case P73 (1992) 14 NZTC 4,489 a New Zealand tax court said commencement work can only be added to a taxable activity. It cannot, by itself, amount to a taxable activity. So, if the taxable activity never actually gets up and running the work done in connection with the beginning of that activity cannot be treated as part of any taxable activity.

For GST purposes therefore, the amounts spent on the pre-commencement activities fall into a black hole and there is no entitlement to claim an input tax credit unless the business or taxable activity actually gets up and running.

Who knew that?

Iain

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Fishing quota and coastal permits

Inland Revenue has confirmed GST second hand goods credits cannot be claimed on the purchase of fishing quota, coastal permits and certificates of compliance.

Two binding rulings (BR 15/01 and 15/02) just released by the tax department conclude fishing quota, coastal permits and certificates of compliance are not “goods” under the GST Act and therefore a “second hand goods” input tax deduction cannot be claimed when a non-GST registered vendor transfers these items to a GST registered purchaser.

Fishing quota are not “goods” because they are choses in action which are expressly excluded from the definition of “goods” in the GST Act. Coastal permits and certificates of compliance are granted under the Resource Management Act which provides they are not personal or real property and, therefore, they too do not fall within the definition on “goods” in the GST Act.

This will come as no surprise to most people because these new rulings reach the same conclusion previously published by the Department in earlier and now expired rulings.

The rulings are effective indefinitely.

A copy is attached.BR 15 fishing quota second hand goods

 

cheers

 

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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Certainty in construction

Planning ahead and attention to detail in contractual documentation are essential for retirement village operators wanting clarity of what GST costs they are up for.

That was the key GST message at this week’s Retirement Villages Association finance forum focussing on construction and development. Another outstanding event incidentally run by the able team at the Retirement Villages Association: www.retirementvillages.org.nz.

There aren’t many businesses in New Zealand with more GST headaches than retirement village operators. They live in a complex GST world. Getting it wrong can be expensive not to mention extremely time-consuming.

When constructing a facility, retirement village operators cannot claim GST credits on some construction costs, can claim back all GST on some costs and have to claim a portion of GST on other costs provided they continue to monitor and adjust that portion annually.

Knowing what they can and can’t claim and what costs they have to monitor every year makes for better sleep. Those operators who include GST in their planning when budgeting, concluding contracts and setting up systems will have an easier time and more clarity over their financial position. This involves people throughout their organisation with an appreciation of the GST issues working together. The legal, finance, IT, procurement, sales and property teams need to be working together.

When all systems, processes and controls are set up to deliver a correct and consistent GST outcome life is a lot easier and less risky for a retirement village operator.

Iain

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28 October deadline for non-residents

Non-residents wishing to register under the special GST registration system have until 28 October to ensure their registration (and refund claims) are backdated to 1 April 2014.

All non-resident businesses who have incurred costs in New Zealand and who are not already registered for GST in New Zealand should consider registering under the new scheme so they can claim refunds of GST.

It’s not necessarily a straightforward process but it can be worthwhile.

Iain