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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.



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Taxing energy drinks unconstitutional

A recent decision in France has concluded a government tax on energy drinks contravenes the country’s constitution.

Under France’s tax laws a tax was imposed on energy drinks with at least 220 mg of caffeine per 1,000 ml.

The tax was challenged and the Constitutional Council was asked to rule.

The Council gave its decision on 19 September.

In its decision the Council indicates the goal of improving public health was the policy foundation for the tax and concludes it is acceptable, in pursuing that goal, to distinguish between drinks based on caffeine content.

However, in this case, some drinks which had higher caffeine levels than 220 mg per 1,000 ml were exempt from the tax because they weren’t “energy drinks”. This was a problem according to the Council because in effect drinks that were substantially the same in terms of caffeine content were not treated equally for tax purposes and this differential treatment was not justified.

Therefore, the Council ruled the tax is contrary to France’s Constitution.

The lesson for tax policy makers – it’s not what you do, it’s how you do it. The problem was created because caffeine was used as the determinant for imposing the tax. If a characteristic unique to “energy drinks” had been used instead then it’s possible a different outcome might have been reached.


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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.




GST for schools – consultation

This item discussed a draft ruling from IRD on the GST treatment of payments made by parents to schools. The ruling has now been finalised with no significant changes. Anyone looking after the GST compliance and systems for a school needs to be on top of this.


Inland Revenue interim operational position for GST and Bodies Corporate - 23 June 2014

Inland Revenue interim operational position for GST and Bodies Corporate – 23 June 2014

The Government recently announed its intention to introduce legislation exempting bodies corporate from GST, back dated to 6 June 2014.

There’s a slight problem in that this legislation can’t be enacted until after the election.

So, bodies corporate are told the law will be changed effective from 6 June but don’t know for sure whether that will actually happen. The election could produce quite a different Parliament. It could be foolish to presume the new Parliament will adopt the current Minister’s position on this.

In the meantime Inland Revenue has issued an interim operational position to help bodies coporate navigate through this period of uncertainty.

Inland Revenue generally must apply the current law which, in its view, allows bodies corporate to register for GST. However, in this instance the Department has stated it will not require an unregistered body corporate to register for GST, even if it receives levies of more than $60,000 per annum (the mandatory registration threshold).

It’s arguable whether Inland Revenue is able to ignore the compulsory GST registration requirements in this way, but, as I’ve said before, its position can be commended for being sound tax administration during this interim period. 

The interim position statement covers a wide range of possible scenarios.

The greatest implications arise for bodies corporate currently registered for GST which, once the proposed legislation is passed, will no longer be entitled to be registered with effect from 6 June 2014. As the statement explains, they will have their GST returns amended and their registration cancelled as at 6 June 2014. This could result in a liability to Inland Revenue or refunds being due from Inland Revenue to a body corporate.

Unwinding GST returns and payments lodged by a body corporate from 6 June 2014 until whenever the proposed amendment is passed (if at all) could be messy. There’ll be potential use of money interest issues and it’s likely tax advisors will have to be called in to help given the complexities.

The greatest risk arises for a body corporate claiming input tax deductions exceeding its output tax liabilities during the interim period. It could be faced with paying back tax to Inland Revenue and having to make submissions asking for use of money interest to be waived (which hopefully would occur but there are no guarantees).

Depending on cash flow requirements and other factors we could see some bodies corporate delaying input tax claims during this interim period so their GST returns are net nil or result in just a little net tax to pay. GST input tax deductions are able to be claimed in later GST periods for up to 2 years. That allows a body corporate to wait and see whether the current Government’s proposed amendment is ultimately passed by Parliament after the election before submitting large refund claims. If the legislation is passed it will be less messy to unwind the GST returns already lodged.  If it isn’t, they can include the input tax claims in a later GST return.

This really has become quite a complicated area for what always seemed to me to be a pretty straightforward issue. It would be much better if the current law stood and bodies corporate were within the GST system just like everyone else. Someone needs to get the horse back in the paddock.








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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.