Keeping up with GST changes, by Dale Adamson
The latest tax legislation, introduced to Parliament on 8 September, has only passed its first reading but once enacted, will have GST effects to be phased in over a couple of years.
The first is an amendment that corrects earlier legislation (effective 1/4/11) which made some residential accommodation subject to full GST on sale, even though only part of the property was used for business: e.g. a farmhouse or residential property containing a business office. Under the old rules, an adjustment was permitted on sale to claim previously unclaimed input tax but the net result was that GST was payable on 100% of the profit on sale, which could be considerable if the property had been owned for some time.
The new legislation will enable affected taxpayers to notify IRD and adjust for any GST claimed on acquisition, on improvements or if the property was zero rated, to in effect wipe the necessity to account for GST on a future sale of the now exempt house. The timeframe for this fix is between 1/4/23 and 1/4/25.
If property was sold between 1/4/11 and 31/8/22, there is no concession available.
For property sold 1/9/22 to 31/3/23, where principal purpose is not business, no GST been claimed on purchase (or if zero rated adjustment correctly made) and GST returned on sale, can amend return to exclude it.
Note that claims on overheads such as a part of utilities, minor maintenance etc. are now ignored as consideration is only given to the capital asset itself.
This is a very complex area, so even if you are not anticipating selling the property in the near future, get your adviser to ensure there is no long term potential exposure to GST which needs correction during the concession period.
The second amendment is to the tax invoice rules which are scheduled to take effect from 1/4/23. The term “Tax Invoice” has been replaced with “Taxable Supply Information” (“TSI”). This is broader and can include invoices, contracts or other documents to support the transaction.
The low value threshold for reduced information requirements has increased from $50 to $200.
One important change is that the date of supply must now be shown on all levels of documentation, not the date invoiced.
Buyer created tax invoices no longer require IRD approval, just agreement between supplier and customer.
For GST registered purchasers, TSI for any purchase over $200 must be provided by the supplier within 28 days of supply. Non GST registered purchasers may also request TSI.
The third amendment will affect accommodation or transport service providers who operate through electronic marketplaces. These may include BnBs, Uber drivers, Uber Eats etc. Under these rules which come into effect from 1/4/24, the marketplace operators collect and return GST on behalf of the underlying suppliers, regardless of the suppliers’ GST status.
We will provide further details on this change prior to implementation date.
In summary, if you own a farm house or property that has been used partially for business, are an accommodation or transport provider operating through an electronic marketplace, or a GST registered business, you need to be aware of the proposed GST changes.