Bill introduces GST on online services and a new residential land withholding tax

December 2015 Tax Alert

The Taxation (Residential Land Withholding Tax, GST on Online Services, and Student Loans) Bill was introduced on 16 November 2015. The bill includes proposals to apply GST on cross-border intangibles and services in order to bring New Zealand into line with other OECD nations.  The amendments are intended to maintain New Zealand’s broad based GST system and to create a level playing field between domestic and offshore suppliers of services and intangibles. The amendments broadly follow OECD guidelines which establish an international set of principles for determining when countries have the right to tax these supplies.  New Zealand is the latest to follow other countries in implementing similar rules (for example, Australia, South Africa, members of the European Union, Norway, Japan, South Korea and Switzerland). The proposals largely follow those outlined in the discussion document released in August 2015. The key points are:

  • The new rules will come into force on 1 October 2016.  Offshore suppliers will be required to register and return GST if their supplies of services to New Zealand resident consumers exceed NZ $60,000 in a 12-month period;
  • Services and intangibles supplied remotely by an offshore supplier to New Zealand-resident consumers will be treated as performed in New Zealand and therefore subject to GST;
  • To ensure compliance costs are minimised, the new rules will only apply to “Business to Consumer” transactions and not to “Business to Business” transactions (but offshore sellers of services to businesses will be able to zero-rate these supplied so that offshore sellers can then recover any New Zealand GST);
  • A broad definition of “remote” services is proposed.  This includes both digital services (such as video, music and software downloads) and more traditional services (such as legal and accounting services received remotely);
  • The offshore sellers will be required to pay GST on a quarterly basis and the first return will be a transitional return covering the period of 6 months from 1 October 2016 to 31 March 2017; and
  • In some situations, an operator of an electronic marketplace (such as an app store) may be required to register instead of the principal offshore supplier.

The second main measure of the bill concerns a new Residential Land Withholding Tax (RLWT). The new rules are designed to support the collection of tax imposed on offshore persons as part of the ‘bright-line’ residential property sales rules recently enacted.  RLWT is a method for collection of tax on sales of residential property by offshore persons who sell the property within two years of acquisition.  No exception for the vendor’s main home will be available, because it is unlikely that an offshore person has their main home in New Zealand.  The Bill proposes that the primary obligation to withhold RLWT will fall on the vendor’s conveyancing agent, with a secondary obligation on the purchaser’s conveyancing agent.  In the absence of either, the obligation will fall on the purchaser themselves.  The proposed RLWT will come into force on July 1 2016.

The last measure included in the bill concerns the student loan scheme. Specifically it is proposed to allow the sharing of certain information on New Zealand student loan borrowers living in Australia between Inland Revenue and the Australian Taxation Office. The bill also proposes a small number of technical measures designed to keep the student loan scheme rules clear and current.

For more information on these new rules, please contact your usual Deloitte tax advisor.

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