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.