Legislation introduced yesterday will clarify the GST status of bodies corporate.
Here’s the press release: http://taxpolicy.ird.govt.nz/news/2015-02-26-bill-clarifies-gst-bodies-corporate-rules
This issue has some history.
In the past Inland Revenue took the view bodies corporate did not have to and could not register for GST. That was tested in recent years by some which wanted to register so they could claim GST credits for remedial work done following leaky building claims.
Last year the Government announced its intention to change the law so that it was clear bodies corporate could not register for GST. This would be done by exempting bodies corporate from GST, which in turn meant some confusing and complex provisions to deal with the consequences of an exemption.
The proposal was subject to consultation and the response from tax experts and industry was pretty forceful by all accounts.
This latest development comes close to concluding this particular argument.
Some see it as a “back down”. Sure it is a change of approach for the government but the core policy, not requiring bodies corporate to register for GST remains the same. You could see it more as an example of how laws get made. There’s a proposal, then consultation then a final position.
The solution is quite elegant in my view. Bodies corporate won’t be required to register for GST, so that deals with those who were concerned about unnecessary compliance costs for taxpayers and the government. However, they will be able to register and those which are already registered may remain registered. So that deals with those who wanted registration as a means to recover GST on their costs.
To avoid a flood of bodies corporate registering suddenly so they can spend their leaky building settlements and claim back GST there’s a rather unique provision which says on registration a body corporate will have to pay GST on the value of any funds they hold. My concern about this is it seems to treat a body corporate which has already received a leaky building settlement differently from one which has yet to receive a settlement. The latter can still opt to register and potentially have no GST liability on their settlement amount.
The law making process hasn’t been completed yet so this isn’t necessarily the last word on this issue.