, , , , , , , , ,

Election 2014 – your GST vote

This weekend’s New Zealand general election offers some choice in GST policy.

So, if you’re a GST geek like me you might be swayed by what the different parties intend doing about GST.

Here’s what I’ve been able to find out about some of the main parties’ GST policies:

Labour Party – no change to base or rates. Committed to simplifying compliance and supports “one hour, one return, one payment” principle for monthly GST and income tax compliance.

Green Party – no change to base or rates. Propose extra ecological taxes but will leave detail to a commission. Also, propose financial transaction tax. [comment – subject to seeing the detail, the existing GST system could be one way of achieving these new tax imposts].

National Party – no change to base or rates.

Mana Party – propose abolition of GST and replace with “Hone Heke Tax” on financial speculation.

Maori Party – will revisit removing GST on healthy food (fruit and veges) and also increasing GST on sugary drinks.

I couldn’t find any detail from other parties. If anyone knows any more feel free to comment.

Cheers and happy voting on Saturday Kiwis

Iain

, ,

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

, , , , , , ,

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

, , , , , , ,

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

, , , , , , , , , , ,

Bodies corporate and GST

Last week the Revenue Minister issued another Discussion Document on the GST treatment of bodies corporate.

The IRD seems to have come full circle on this one. See here:

Bodies corporate and GST.

It is proposed our GST legislation will exempt a body corporate under the Unit Titles Act from having to register for GST. In fact they won’t even have the option of registering for GST.

I think this is dangerous ground.

The key background is:

– for years the IRD didn’t allow or require residential bodies corporate to register for GST.
– consequently the IRD says most bodies corporate are not registered for GST.
– IRD lawyers reviewed the position and decided this approach was probably wrong.
– the IRD consulted and received submissions expressing concerns about any change to align with the IRD lawyers’ view.
– accordingly, the IRD now proposes legislation to validate their original interpretation that bodies corporate cannot register for GST.
– the reasons given for the law change are the potential compliance costs if bodies corporate have to register and the apparent inconsistency that would arise between bodies corporate and other residential propoerty owners.

1. Compliance costs. Well I don’t buy this argument. If it’s valid then it’s also a legitimate basis for exempting all businesses from GST and that’s not likely to happen is it?

2. Inconsistent treatment. The apparent concern is that ordinary home owners cannot register for GST in relation to their residential property ownership. It is therefore wrong to require a body corporate under the Unit Titles Act to register for GST in relation to the services it supplies to its residential property owners because they are essentially one and the same entity.

This argument doesn’t appear to be based on GST principle.

Bodies corporate would not have to register under existing law if all they did was provide residential accommodation. But, they actually don’t do that. They in fact provide a wide range of other services to their owners including maintenance, administration and representation. They are no different from a third party entity providing similar services to a group of residential property owners. The third party entity would be required and able to register for GST.

The distinction argued for is that a body corporate is owned by the unit title owners to whom it supplies services, i.e. they are in substance the alter ego of one another.

Do we really want a principle in our GST law that the corporate veil should be looked through, a company cannot as a matter of law supply services to its owners?

Where does that stop?

Nice as it might be to relieve a group of small taxpayers from their obligations under the law to me this is just not what our GST legislation should be doing. It creates a pretty difficult precedent.

Reading between the lines this seems also to be about a perceived advantage for some GST registered bodies corporate which received leaky building settlements (not subject to GST), using those funds to repair their owners’ properties and claiming GST input tax credits for the repair costs. If an ordinary home owner received a leaky home settlement (not subject to GST) they would not be able to claim GST credits on their repair costs.

The IRD sees this as a mismatch needing a legislative cure. I don’t think that’s correct. The difference is simply a question of quantification of loss, i.e. how much the leaky home compensation amount should be. For one party, GST is a cost and the compensation covers it. For the other it is not a cost and that would presumably be reflected in the settlement amount. So they are equalised.

Further, depending on how the settlement occurs, it’s possible a GST registered body corporate could well have an obligation to account for GST on the receipt of the payment so there is ultimately no difference between the parties.

This proposed change just doesn’t stack up in my view.

Iain

, , , ,

Bahamas VAT

The Bahamas will have a new VAT from 1 January 2015: 7.5% (0% for exports) on a broad range of goods and services, few exemptions, small business concessions, “inclusive” pricing and an extensive public education programme.

Confirmed by the PM and Minister for Finance, The Rt Hon Perry G. Christie on 28 May in his Budget Communication to the House of Assembly.

More details to come when new VAT Bill is available.

Iain

, , , , , , , ,

NZ GST legislation inadequate

The NZ GST Act inadequately deals with online supplies of services and should be fixed immediately.

I’m referring to how the Act treats those selling products online such as e-books, movies, professional advice, teaching materials, photographs and lots of other digital information.

For businesses selling directly to private consumers the issues are more significant.

In certain situations the legislation requires the supplier to determine where their sales are “physically performed”. This affects how GST applies to them.

The concept of “physical performance” does not sit well with how these products are delivered. Is it the place where the supplier is located, where a server in the delivery chain is located, where the consumer is when they download the relevant product, where the consumer resides or some other place? Is there any “physical performance” at all?

I know these issues are being looked at and no doubt we’ll see some reform at some stage.

However, businesses are having to work out how the law applies to them now and it’s just not clear at all.

Iain