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Time to tidy up the GST Act?

The GST Act needs to be tidied up and made more user-friendly in my view.

I read the GST Act every day. Sad, I know.

Anyway, it used to be pretty simple to navigate around but lately I’ve been finding it a bit more of a challenge. (No smart comments about aging please).

In the copy I have the first 20 sections take up more than half of the total pages. The remaining 67 sections the other half. There are some very long sections in that first part and confusing numbering because of amendments over the years.

There are seven sections numbered 15, six numbered 19, eight numbered 20, twelve numbered 21 and nine numbered 78.

Section 5 has fifty-two subsections!

I know it’s not earth shattering stuff, and doesn’t change the substance of the law, but it just would be nice if, for its thirtieth birthday (2015) this dearly loved piece of NZ tax legislation were rewritten and tidied up.

Cheers

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

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GST and tips

Some discussion lately on tips and GST.

It’s become more common for eftpos devices to offer customers a tipping option when paying their bills. The GST implications of this are more complex than the old-fashioned method of slipping a bit of extra cash to the staff person directly.

Businesses use different methods for sharing out tips that have been paid with eftpos.

In my view some methods could result in GST being payable on the tip because it could be seen as an extra payment for the service received from the business or an agreed adjustment to the price, particularly where it is not paid directly by the customer to a staff member to reward them personally for extra effort.

Inland Revenue has made clear statements about the income tax treatment of tips. It might be timely to extend that guidance to cover other tax implications, such as GST given the technological developments in this area.

Iain

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GST on lotteries, raffles, sweepstakes and prize competitions

The IRD has just released for consultation a “Questions we’ve been asked” draft paper on the GST treatment of lotteries, raffles, sweepstakes and prize competitions.

You can find it here: http://www.ird.govt.nz/resources/a/1/a1b5b4ef-32bc-4315-9c80-09d5b70712f1/qwb0121.pdf

Submissions are due by 24 October.

I recommend all not for profit organisations and others running raffles, lotteries or prize competitions have a read and make sure they understand the implications.

If the entity on whose behalf the raffle, sweepstake or lottery is being run is registered for GST, or required to be registered for GST, then that entity is required to account for GST on the proceeds.

GST is calculated based on net revenue after deducting cash prizes payable. Where prizes are purchased GST incurred on those purchases can be claimed as an input tax deduction. Obviously GST cannot be claimed on donated prizes.

Even if the prizes were donated GST will still apply to the raffle/sweepstake/lottery proceeds.

According to IRD someone conducting a raffle which will have revenue exceeding the GST registration threshold of $60,000 will be liable to register for GST and account for GST.

Much of what is in this document won’t come as a surprise to most raffle/lottery organisers and they will already be complying.

However, a point needing more clarity in my view is when a one-off raffle organised by someone which takes place over a short period of time will be considered a “taxable activity” for GST purposes, thus requiring the organiser to register and account for GST on the raffle (assuming the proceeds are over $60,000.

Cheers

Iain

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Good news for Australian tiramisu lovers

The Australian Tax Office publishes a detailed food list which, over 88 pages, gives their opinion on the GST status of everything from abalone to zabaglione.

Tiramisu was on the list as subject to GST. However, on 27 August the Tax Office removed tiramisu from the list.

This means from now on not all tiramisu products are subject to GST in Australia. Some are “GST free”.

This is fantastic news for tiramisu lovers and no doubt there’ll now be something resembling a gold rush on GST free tiramisu products!

Sometimes I wish we had GST exemptions for food in New Zealand, even if just to give IRD workers the chance to think about fascinating questions such as whether tiramisu is subject to GST.

Our GST system seems so mundane by comparison, but, honestly, would we really want it any other way?

Iain

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What’s the IRD working on?

IRD has published its Public Rulings work programme for 2014/15.

You can find the full document here:

http://www.ird.govt.nz/resources/7/7/77d3ecdd-6305-408a-8b88-541e509f487b/download-pr-work-programme-2014-2015.pdf

Given GST is by far the most interesting tax here are the key points from the programme:

Currently consulting on (consultation period closed)
Time of supply when no supply made. This ruling covers when, if at all, GST has to be accounted for if a supply does not proceed. It’s pretty esoteric stuff but does have some practical implications for land transactions especially.

Currently consulting on (consultation period still open)
GST treatment of payments made to state schools. This covers school “donations” and other payments to schools and discusses when GST applies. Mainly affects state schools and provides more clarity over the treatment of what is a bit of a minefield.

Items currently in progress (nothing publicly available yet)
Secondhand goods claims for fishing quota/coastal permits and certificates of compliance.
Late return fees for hired goods.
Lotteries, raffles, sweepstakes and prize competitions.
Retirement villages Interpretation Statement update.
Non-profit bodies and section 20(3K).
GST and relationship property agreements.

Watch out for something to be published on the above. Fishing companies, secondhand goods traders, hire businesses, charities, aged care providers and relationship property lawyers will be particularly interested in these.

Known issues but NOT currently being worked on
GST and parking fines.
Partnership capital contributions.
GST under the Project to Reduce Emissions programme.
Single versus multiple supplies.
Directors’ fees and fees for board members.
GST and bare trusts.
Legal services provided to non-residents relating to transactions involving NZ land (a political hot potato).

If these issues concern you then it looks like you’ll be waiting until after 2015 before seeing progress.

It’s a pretty comprehensive work programme, especially when all the other (less interesting) taxes are added in. The IRD will have had to fix priority areas based on internal and taxpayer feedback.

Some of these issues are pretty important and when finalised will go a long way to improving the integrity of the tax system for many taxpayers. It’s a pity some of the not insignificant extra resources given to the IRD in recent years to audit taxpayers could not be diverted to allow this work to be completed more quickly.

Cheers

Iain

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Visiting sports teams

The recent publicity about AFL players being pinged for income tax as “entertainers” when they played the Anzac Day matches here is interesting. See here:

http://www.3news.co.nz/Wellington-AFL-game-hit-with-tax/tabid/415/articleID/355731/Default.aspx

Like everything in life there’s a GST overtone to this.

The players would have spent money on food, accommodation, transport and other stuff when in New Zealand, all of which would have been subject to GST.

The interesting question is how these players would get on if they sought GST refunds for the costs they incurred here as non-resident “entertainers”. It seems possible under the new GST non-resident registration rules but there are some reasonably strict criteria.

Still, could be a case of the Government taking with one hand and paying back with another?

Iain

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Surprise in body corporate treatment?

A Product Ruling (BR Prd 14/08) published by IRD on 28 July is fascinating as much for what it doesn’t say as the conclusions reached.

Facts briefly:

– Unit title building in Christchurch.
– Mostly commercial property.
– Destroyed in earthquake.
– Body corporate insured building and paid the premiums (including GST). The Body Corporate was the named “insured” not the individual unit owners.
– Claim made. Settlement reached. Insurer paid out in full and final settlement.
– Rather than reinstate the building the Body Corporate resolved to distribute the settlement funds to all unit owners in proportion to their interests.
– The majority of unit owners are registered for GST but the Body Corporate is not.
– CERA purchased the unit owners’ interests at current market value (on an “as repaired” basis) less the amount of the insurance settlement distributed to each Owner.

Ruling:

The IRD have ruled –

1. GST registered owners do not have to account for GST on the receipt of their share of the insurance settlement distributed to them by the Body Corporate.
2. The distribution of the insurance settlement proceeds by the Body Corporate to each GST registered owner is not subject to GST.

This Ruling is fascinating. I don’t necessarily disagree with it but I am intrigued.

It’s a Product Ruling, which means it’s public. Surely it could have been a private ruling?

An entire paragraph is repeated. It’s very unusual for the IRD to have typos that big in rulings. They are generally checked and re-checked.

If the insurer gets to claim an input tax deduction for the settlement payment to the Body Corporate (which it seems to me could be the case) and if the GST registered Owners had used the funds to repair the building isn’t there a potential for a double claim of input tax deductions? They could claim input credits on the repair costs and yet according to the Ruling no one has an output tax liability on the receipt of the settlement. Now, I know that’s not what happened because the building wasn’t repairable. However, if that were not the case would the GST result have been any different?

Also, the Body Corporate paid the insurance premiums and wasn’t registered for GST. That seems odd. So, the GST registered Owners were not able to claim GST input tax deductions for the insurance premiums (because it seems the Ruling has concluded there was no agency relationship between the Body Corporate and the Owners). I wonder how many commercial unit title buildings in New Zealand arrange their insurance this way? I wonder if some Owners are in fact claiming GST input tax deductions whereas this Ruling seems to suggest they wouldn’t be entitled to. Seems like a pretty strange state of affairs.

I’ve got to be missing something here. Can someone help me out?

cheers

Iain

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NZ businesses are getting it wrong

I’m seeing increasing evidence of misunderstanding over how the zero rating rules apply.

From 1 April 2014 non-resident businesses can register for GST in NZ under a new system which allows them to claim GST refunds on business related costs. Historically a business had to supply goods or services in NZ before it could register and claim back GST on its costs here. That is no longer the case.

I’ve been working with a number of overseas businesses wanting to take advantage of the new system.

What’s starting to emerge is surprising. A number of these overseas businesses are looking to reclaim GST they should never have been charged in the first place.

The most common mistake I’ve seen is made by NZ service providers contracting with an overseas business. They’ve charged 15% GST when the transaction should have been zero rated.

To be fair, the zero rating rules are not the easiest in the legislation to follow. There’s quite a lot of case law on them which speaks to some of the complexities.

There seems to be a common misunderstanding that because services are performed in New Zealand (i.e. the work is done here) GST has to apply at 15%. That’s not necessarily the case. Only some services performed here and supplied contractually to a non-resident business are taxed at 15%.

If you’re providing services to overseas businesses I suggest you check how you are dealing with GST. If you’re incorrectly charging it at 15% you may find Inland Revenue comes knocking when your customer tries to register under the new system and claim back GST that should not have been charged.

Cheers

Iain

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GST for schools – consultation

Inland Revenue has released a draft Public Ruling on the GST treatment of payments by parents to state schools.

This is a re-issue of previous rulings with just a few changes to reflect recent developments in GST law.

If you want to comment on the draft ruling you have until 8 August.

The draft is pretty much in line with what you’d expect. It essentially distinguishes between payments which are true “donations” (not subject to GST) and payments for extra goods and services not covered by compulsory State funded education (subject to GST).

Schools won’t always find it easy to work out exactly where the line is drawn so caution is required particularly if changes to payment structures are being considered. There are some subtle complexities to come to grips with.

You need to read it yourselves but here’s a taste:

1. Not subject to GST:
– General donations intended to be used for general school costs i.e. not earmarked for a particular purpose.
– Payments for materials necessary for delivering the statutory curriculum (eg materials in a clothing class) unless the payment is for ownership of the completed item which the student can then take home.
– Photocopying charges for material which is necessary for teaching the statutory curriculum unless the payment is for the purchase of an additional item such as a school magazine.
– School camp payments where the camp is a compulsory part of the statutory curriculum.
– Charges for reading recovery programmes and special education services mandated as part of the school’s charter.

2. Subject to GST
– Stationery packs and optional workbooks students are entitled to keep.
– A fee to attend a performance by a visiting group for which attendance is optional.
– Goods supplied where there is a clear (and optional) take home component.
– Charges to attend or participate in activities which are optional.

There is a lot of detail in the ruling which anyone handling GST for a school should study.

And, in case you thought you had it all covered, Labour has just announced that if elected they will end “voluntary” school donations. That could mean schools account for GST on a much greater propoertion of the payments they receive from parents, and potentially all payments depending on how exactly the policy is implemented.

Cheers

Iain