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GST and non-profit bodies

Inland Revenue released their updated “Public rulings work programme” on 5 October. This is where they announce key policy areas they are working on at the moment. It means we can expect some sort of discussion document, legislative announcement or ruling on certain aspects of tax.

Once again there’s an item relating to non-profit bodies and GST. In the programme Inland Revenue have described it like this:

QWB00078 GST – non-profit bodies and section
3A(4A)
Does a non-profit body need to conduct a taxable activity and make supplies in the course of that
taxable activity to claim input credits?

All GST registered non-profit bodies need to be alert to this. The question posed by Inland Revenue implies they are thinking about whether non-profit bodies should have less ability to claim GST on expenses.

Section 3A(4A) of the GST Act was enacted in 2002 as a concession for non-profit bodies. Broadly speaking it meant a GST credit could be claimed by a non-profit body on any expense as long as that expense was not incurred for the principal purpose of making exempt supplies (being supplies of residential accommodation or financial services).

This was quite generous because other GST registered businesses actually need to show a connection between the expense and their business outputs before they can claim a GST credit. This concession means non-profit bodies could claim GST on expenses which generally related to their non-commercial or charitable activities as long as they weren’t mainly connected to supplies of residential accommodation or financial services.

Section 3A(4A) was technically repealed from 1 April but its effect still exists in a new section 20(3K).

All non-profit entities need to consider how this might impact their budgets.

Inland Revenue have not given a timetable for release of any proposals or discussion document so it’s a waiting game at the moment. At some stage in the next 12 months it would appear we can expect some movement. Then there should be an opportunity for those affected to have their say.

Iain

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