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Australia considers $20 import threshold

It looks like Australia will reduce its $1,000 low value import threshold to $20. http://www.smh.com.au/federal-politics/political-news/gst-on-lowvalue-imported-parcels-moving-closer-20150721-gihfgy.html

This issue has been around for ages. The main objection to a reduction has been the administration costs of processing the additional parcels.

Politicians now think new technologies help with the administration. Besides, they say it’s a matter of principle, levelling the playing field for local retailers.

Will New Zealand follow suit?

Well, Australia hasn’t gone there yet, but if they do then in my view it’s only a matter of time before NZ does the same.

Iain

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Australia jumps ahead of NZ in taxing digital commerce

The Australian Government has released draft legislation proposing to apply GST to downloads and streaming of digital content and other services supplied from offshore to Australian consumers.

This will affect media such as games, movies, e-books and music downloaded over the internet by Australian resident consumers. GST will also apply where an Australian consumer buys other services from offshore such as legal, accounting, architectural, medical or other similar services.

There will be measures to allow the GST to be collected from operators of electronic distribution services in addition to the offshore supplier and a simplified registration regime appears on offer. A lot of the detail will appear later in Regulations.

The States of Australia still need to approve the legislation but it is intended to apply from 1 July 2017.

So Australia gets an early jump on NZ. Bets are on something similar being announced in the NZ Government’s Budget this month.

The practical issues with these measures have been well debated now and no complete or ideal solution has been found. Australia is essentially following the EU lead.

The Australian approach tilts the playing field completely in the opposite direction. At the moment, products sold electronically from offshore (such as e-books) are not taxed as highly as goods purchased online and imported into the country.

When this measure comes into force the preference shifts in favour of goods purchased online. That is because, for goods bought over the internet and imported into Australia there is a threshold of $1,000 below which no tax is payable. There is no suggestion at this stage to apply a similar threshold to imported services. How this impacts consumer choices (such as buying hard copy books over the internet rather than an e-book) remains to be seen.

The thorny issue of the low value import threshold just won’t go away.

 

 

Iain

 

 

 

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GST heat goes on internet sales

Debate is turning into action over taxing internet sales.

The Australian Treasurer told media at the Council on Federal Financial Relations Meeting in Canberra on 9 April his Government will require overseas companies selling intangibles into Australia to register and pay GST on their sales there. This includes companies like Netflix and many others which are clearly in the Australian Government’s sights.

Treasurer Hockey says the States in Australia have agreed to this in principle and they intend working as quickly as possible to achieve it. He also said it would make sense to apply the same rules to goods sold over the internet below the import exempt threshold of $1,000. That will be welcome news for Australian retailers.

http://jbh.ministers.treasury.gov.au/transcript/075-2015/

Meanwhile, in New Zealand, our Government maintains the line it will await the OECD special working party on digital commerce (due to release a further report later this year) before acting and there is no current intention to review the low value import threshold here for goods.

NZ retailers still have their work cut out to persuade our Government to act sooner and follow the EU and South Africa.

On 13 April Retail NZ and Bookseller NZ launched an #eFairnessNZ campaign seeking urgent action on this. They say it is hurting retailers all over New Zealand. The campaign is being run on Facebook, Twitter and Instagram using the hashtag #eFairnessNZ.

www.retail.kiwi/eFairnessNZ

While the regimes in place in South Africa and the EU have significant practical and enforcement issues it does appear they are collecting revenue. We won’t know how they are impacting consumer behaviour for another few months but it certainly doesn’t look like the sky has fallen on them.

I’d say this is an inevitability but we still are some way away from the ideal technological solution we need.

Cheers

Iain

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Govt raises stakes for online shoppers

The NZ Prime Minister says his government will go it alone if the OECD doesn’t move quickly enough to impose GST or VAT on online sales.

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11418586

The fact the Prime Minister is raising this now is significant. The OECD is working on a multilateral solution for governments losing tax revenue from digital commerce. The next reporting deadline is towards the end of 2015. The question is, will Mr Key wait that long? He doesn’t say.

Other countries have already moved on this. The EC requires certain overseas companies to register and collect VAT on products sold to consumers in the EC. South Africa has done the same and there are others.

The likely multilateral solution will focus on enforcement in my view. Legislating to require non-resident companies to register for GST here is an important first step and most companies will comply. However, many may not and the Government will need a mechanism to enforce the law. That’s where an OECD wide solution could be helpful.

Prime Minister Key is suggesting some mechanism to block digital retailers from access to OECD consumers if they do not comply with the VAT/ GST law.

Clearly this issue is now well and truly in the Government’s spotlight. NZ retailers have been pushing for something to be done for some time now and will be watching developments closely.

Cheers

Iain

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It wouldn’t happen in New Zealand – or would it?

An Australian court says a taxpayer has not commenced a subdivision activity until they have the funds needed to purchase the land. The costs spent beforehand on planning permits and market valuations were preliminary or preparatory to starting any business.

That’s according to a Melbourne tax court in Bryxl Pty Ltd v FC of T [2015] AATA 89.

This is a big deal for the taxpayer because it means they can’t claim GST credits for the planning and preparatory expenses. Their GST registration was cancelled and they had to pay penalties.

New Zealand’s GST legislation says “anything done in connection with the beginning … of a taxable activity is treated as being carried out in the course of .. the taxable activity.”

That would indicate the Bryxl Pty Ltd might have got a different result in New Zealand.

But not necessarily. In Case P73 (1992) 14 NZTC 4,489 a New Zealand tax court said commencement work can only be added to a taxable activity. It cannot, by itself, amount to a taxable activity. So, if the taxable activity never actually gets up and running the work done in connection with the beginning of that activity cannot be treated as part of any taxable activity.

For GST purposes therefore, the amounts spent on the pre-commencement activities fall into a black hole and there is no entitlement to claim an input tax credit unless the business or taxable activity actually gets up and running.

Who knew that?

Iain

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Australian Tax Office rules on Bitcoin

The ATO has just issued a ruling on the GST treatment of Bitcoin. Here: http://law.ato.gov.au/atolaw/view.htm?docid=%22GST%2FGSTR20143%2FNAT%2FATO%2F00001%22

In brief:

1. A transfer of bitcoin is a “supply” for GST purposes.
2. Bitcoin is not “money” under the GST legislation.
3. A supply of bitcoin is not a “financial supply”.
4. If bitcoin are supplied in exchange for goods or services the transfer will be treated as a barter.
5. A bitcoin is not a “voucher” for GST purposes.
6. A secondhand goods input credit is not available on the acquisition of bitcoin.

No real surprises there. This had been well signposted.

We await the NZ IRD view which I wouldn’t expect to be much different.

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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Global VAT alignment edges closer

At the Global Forum on VAT in Tokyo last week 86 countries signed up to the first agreed framework for applying VAT to internationally traded services and intangibles. The new guidelines set out core VAT principles to be applied when taxing services and intangibles, will ensure more consistency between countries, will reduce double taxation and will protect the neutrality of business to business (“B2B”) transactions.

While an important step in the right direction, the more vexing question of how to tax internationally traded business to consumer (“B2C”)services and intangibles has been left for another time.

The Global Forum on VAT occurs under the umbrella of the OECD and provides a platform for global discussions on VAT. The first session took place in November 2012. Last week was the second occasion academics, tax administrators. business representatives and others were invited to discuss VAT policy trends and developments.

The main output from this latest session was a set of new OECD Guidelines on applying VAT across borders.

The Guidelines can be downloaded from the the OECD website – here: http://www.oecd.org/ctp/consumption/international-vat-gst-guidelines.htm

The focus of the Guidelines is B2B transactions. They discuss place of supply rules, the well known “destination principle” (B2B services should be taxed in the country where the customer is located) and mechanisms available to countries to allow non established foreign businesses to recover VAT incurred there.

None of this is startling news for New Zealand. We’re already ahead of this stuff thanks to our super charged GST system. Just this month we’ve seen a new streamlined registration and GST recovery system come into place for overseas businesses incurring GST here.

The really challenging question for New Zealand, and every other country with a VAT, is how do you tax B2C services and intangibles traded across borders? Unlike goods there’s no border control in place to capture internationally traded services and there’s no existing registration system to collect the tax from the customer/consumer.

This really is the more urgent question in my view. Countries are attempting to deal with the issue on their own (eg South Africa and the EU) but global cooperation and alignment are critical. Some States in the USA have implemented mechanisms to apply state taxes to inter-state B2C online sales (such as e-books) and the latest evidence suggests these measures are improving the sales of local bricks and mortar retailers at the expense of online retailers such as Amazon.

Last week’s Forum in Tokyo urged the OECD to finalise work on the VAT treatment of B2C services in time for the next Global Forum on VAT in November 2015. That seems like a long time to wait, but as we all know, achieving global consensus on anything is a slow process.

Cheers

Iain

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“Australia should follow NZ GST”?

NZ’s GST is certainly the most efficient form of VAT in the world.

The “VAT Revenue Ratio” is used by the OECD as a measure of VAT efficiency. The average in the OECD is about 50%.

The least efficient is Turkey’s VAT at about 30%. NZ ranks top at a little more than 95%, followed closely by Luxembourg.

Australia’s VAT Revenue Ratio is around 45%.

The Australian Treasury Secretary thinks they can learn from NZ’s GST and argues for a further shift in Australia from income taxes to GST. See: http://www.stuff.co.nz/business/world/9900014/Aussies-should-follow-our-GST-lead

If efficiency is the goal then the evidence seems compellingly in favour of the Secretary’s argument.

However, political realities seem to pull most countries in the opposite direction.

Yes VAT is spreading around the world as the tax of choice for governments but, increasingly those governments are voting for multiple rates, exemptions and zero rating when designing their version of VAT.

When the GFC hit we saw governments making greater use of reduced rates to stimulate activitiy. There is now a growing trend to use penal VAT rates as policy tools to discourage certain “undesirable” consumption (e.g for environmental reasons). Policies like these make a VAT system less efficient but they also make it more politically acceptable and relevant.

Perhaps the questions are: how long can NZ resist these political pressures and is it more likely we will follow the Aussie lead?

Iain

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GST refund claims: keep it real.

You can’t claim GST back on an expense unless you actually receive whatever it is you are paying for.

That’s the message from the Australian Federal Court in a decision released on 1 November [Professional Admin Service Centres Pty Ltd v FC of T].

In that case the taxpayer agreed to contribute towards a man’s legal costs in return for sharing in any compensation he was awarded if successful. The taxpayer tried to claim the GST back on its payments.

The Court agreed with the Tax Office and refused to allow the GST claim because the taxpayer had no contract with the lawyers and did not actually receive the legal services itself.

The taxpayer had also tried to claim GST back on management fees it was “charged” by a related entity. The Court refused this claim as well because the evidence pointed to the fees being a “sham”. No actual services were provided to the taxpayer and no payment was made by it.

A New Zealand court would probably arrive at the same conclusion.

GST depends a lot on the contractual arrangements entered into by the parties. If goods or services are not actually acquired by the person making the payment it’s unlikely they can claim the GST back on the expense (except in some specific “agency” arrangements).

Much care is required around cost sharing arrangements and charges for “management services”. Make sure the contractual terms are consistent with being able to claim back GST and also make sure what you’re paying for is real!

cheers

Iain