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Buying or selling land?

There’s a completely new GST regime coming into force on 1 April for transactions involving any land between GST registered businesses.

The new rules mean some parts of the current Real Estate Institute and Law Society Standard Sale and Purchase of Land agreements need to be changed.

Any business entering into a land transaction which settles after 1 April has to be thinking about this before they sign the agreement.

I haven’t seen any amendments to the standard forms published by the Law Society or REINZ and would be delighted to hear from anyone who knows whether any are planned.

cheers,

Iain

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NZ GST landscape changes

Following Labour leader Phil Goff’s confirmation yesterday his party will remove GST on fresh fruit and vegetables if elected later this year the New Zealand GST landscape has changed significantly.

Since 1986 when the Labour Party first gave us GST there has been bi-partisan agreement with the desirability of keeping a single rate broad-based system. That’s all changed now Labour has committed to moving away from a feature of our system’s design which is admired around the world.

As our standard GST rate crept up I guess it’s not surprising pressure mounted to have exemptions, especially given the regressive nature of GST. We have the 5th highest GST rate on basic food in the OECD. Most countries use a reduced or zero rate for basic food so it was probably only a matter of time before we could no longer resist the pressure.

I wonder though whether this could be a taste of things to come. Once politicians gain an appetite for multiple GST rates following Labour’s lead could we see greater use of this policy tool? Surely it will be tempting to impose higher rates on luxury goods for example as a means to bolster depleting tax collections?

So, who likes Phil Goff’s policy of removing GST on fresh fruit and vegetables?

Iain

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Debate on GST and private imports

Today’s NZ Herald editorial argues collecting GST on low value imports is more trouble than it’s worth and advocates retaining an exempt threshold.

Seehere

The debate seems to be gaining momentum and the Customs Department are in the middle of a public consultation process on this issue.

Some feedback providers to the Herald reckon collecting GST on small imports wouldn’t be as costly as the Herald suggests. The solution apparently is to get credit card companies to collect the GST. Interesting solution. Rather than government paying the costs of collecting these trivial amounts of tax we’ll just get someone else to. That way it’ll be free to collect and the government will have the extra money! Goodness me, are there really people out there who still believe in free lunches?

If we’re going to crack down on these low value imported goods surely we have to get stuck into imported services? At the moment you can import up to $60,000 of services for private purposes without paying GST. That applies to music, software, e-books and anything else delivered digitally yet the threshold for imported goods is $400.

And, what about those people who buy stuff overseas when they’re travelling and bring it into NZ duty/GST free using the $700 threshold?

To me the issue here is not whether we have an exempt threshold but whether we’re being consistent in how we tax goods and services imported into NZ.

Iain

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Cloud computing tax risks

Cloud computing is predicted to become increasingly popular with businesses looking for a complete outsourcing solution to their IT needs. It allows access to computer infrastructure, software and storage (amongst other things) over the internet.

New Zealand’s Inland Revenue Department has concerns about the “storage” part of cloud services. They’ve just issued a Revenue Alert warning businesses using cloud storage services to be careful. The Department has concerns because NZ businesses are required to keep all tax records in New Zealand, unless they get specific approval not to.

According to the Department’s Alert businesses using cloud storage services should ensure their tax records are stored on data centres physically located in New Zealand or they must seek approval to hold records offshore. They point out, failure to do so is an offence which could result in a conviction and fine.

Sometimes our tax legislation struggles to keep up to date with technological advances. The Department is to be commended for alerting people to the issues with cloud computing and I’m sure officials are also looking at whether our legislation and international tax agreements need to be modernised to reflect these sorts of business practices.

Iain

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New rules fly in under urgency

The Government had Parliament sit under urgency at the end of last week to help get away some pretty significant legislation.

New GST law was passed on Friday and now awaits the GG’s signature, expected this week.

Once enacted the new law means:

– Transactions involving land (excluding most leases) between GST registered businesses will be subject to GST at 0% from 1 April 2011.
– A new code for transactions involving nominees.
– Clarification of what a “dwelling” and “commercial dwelling” are.
– A completely new regime for how many finance companies, life insurers, charities and residential landlords claim GST on their expenses.

Having just got over the implementation of the new GST rate there’s now a lot more work to be done for some organisations.

If you’re GST registered and getting into an agreement involving land which goes unconditional or settles after 1 April 2011 you might want to have a close look at the special transitional provisions.

Iain