GST Act gets some amendments
Tax Alert - April 2022
By Allan Bullot & Dave Morris
The Taxation (Annual Rates for 2021-22, GST and Remedial Matters) Bill was enacted on 30 March 2022 with a raft of Goods and Services Tax (GST) changes designed to improve, modernise, simplify, and fix current legislation. In this edition of Tax Alert, we are just touching on a few of the changes, and subsequent Tax Alert articles will go into more technical details. We are also expecting more published guidance from Inland Revenue on a number of the changes contained in the new rules.
As always, we recommend getting in touch if you have any concerns as some of these changes can be complex.
No GST to pay on cryptocurrencies
One of the major changes is the clarification that cryptocurrency is to be excluded from the GST net, and this change has retroactive effect to 1 January 2009. This is a welcome change and removes several practical issues for many businesses operating in this field, however, the legislative changes are likely not going to be the end of legislative reform that is needed in this rapidly evolving area. Prior to these changes coming into force, there was a technical risk that many of the sales of cryptocurrencies to New Zealanders (particularly end consumers) should have been subject to GST at 15%. While this risk is now gone for cryptocurrencies, the risk remains for Non-Fungible Tokens (NFTs).
Given the seemingly infinite flavours of crypto, during the Bill phase the new legislation received several submissions all with various crypto-based scenarios (usually ending with “obviously you don’t understand crypto”). The submissions caused some debate on the term “fungible” as the term was included in the first draft of the Bill under the definition of a “cryptoasset” with one submission asking the question everyone wanted to know on how the legislation would treat “semi-fungible” cryptoassets. The debate on fungibility (welcome to 2022) was resolved by the Finance and Expenditure Committee specifically excluding non-fungible tokens or NFT’s from the definition of cryptoassets, as well as completely removing the term “fungible” from the definition of “cryptoassets”. There were also concerns expressed that some cryptoassets have both fungible and non-fungible characteristics, potentially allowing for supplies where no GST would be due on the sale of crypto that provides non-fungible benefits to the holder. However, this was considered by Officials in their report on submissions to be an “edge case” and it was noted that potential issues would be monitored in the future.
An issue was also raised in submissions about whether cryptocurrency brokerage services would be exempt as “financial services” similar to non-crypto based financial services. This issue was due to the fact that included in the definition of the exempt supply of “financial services” is the term currency; however, currency does not include a cryptoasset. To address the ambiguity, a separate amendment has been included that specifies crypto broking, commission and other related services are financial services and have a default position of being excluded from GST.
“Tax Invoices” it’s all changing, but not until 1 April 2023
Taking up the lion’s share of submissions to the Bill was commentary on the modernising of the GST invoicing rules. While it was intended these changes were to move GST invoicing requirements into the digital era, and that they would not have any impact on current business invoicing processes after being introduced, the high level of concern on practical issues raised in submissions are likely to have contributed to a decision to push back the enactment of the rules to 1 April 2023.
Under the new rules (to be covered in more detail in a later Tax Alert article) there is a much greater degree of freedom in the way in which the GST relevant information can be shared and recorded by the parties. There has been an overriding focus in the legislative changes, that a business that is issuing a valid GST tax invoice now would not have to make any changes to comply with new rules.
This does not however mean that a business can simply ignore the changes. For instance, even if you make no changes in your billing processes after 1 April 2023, you are likely to need to review your accounts payable GST processes. After 1 April 2023, the fact that a supplier’s invoice does not have the words “tax invoice” on it does not mean that it is not a valid document that can form part of the evidence to support your GST claim.
This delay to 1 April 2023 however will not apply to rules relating to compliance cost reduction measures in the invoicing area, such as the proposed changes to buyer-created invoices, GST groups, shared invoices and corrections to supply information which are still going ahead from taxable periods beginning after royal assent (for many this means 1 April 2022).
The proposal to allow a registered person to issue a “buyer-created tax invoice” provided there is an agreement between the parties, rather than writing to the Commissioner for approval, is a great change and is long overdue. However, it will still be important to be able to show that there has been agreement between the parties to use the process. We’re aware some taxpayers are scratching their heads over what to call the documents as they no longer have the catchy legislative name of “Buyer Created Tax Invoice – IRD approved”, while this name still works for previous agreements, the words “IRD approved” may be problematic for new agreements and require IT systems changes to remove those two words.
Second-hand goods credits and associated persons
Many businesses have been caught out previously by a particularly nasty provision that existed in the GST Act, where the purchaser of a property can miss out on a GST input if they initially purchase the property under their own name and then on-sell the property to their GST registered development company. This has frequently resulted in no GST claim at all being allowed to the GST registered developer entity because of the association between the vendor and purchaser. The GST rules have now been changed such that a second-hand goods credit will be available to the GST registered developer, based on the amount paid to the first non-associated person who sold the property in the various associated persons/entities.
This is a very good change, as the old rules did not have a good policy reason to exist, and frequently just caused unnecessary and unfair costs to some land development projects.
Fractions of a cent – what to do
As a measure of some light relief, the final change we will consider, and one that may be of interest to accountants who are kept up at night from GST schedules not reconciling to fractions of cents. Officials have pragmatically lent their support for legislative changes so that the GST rounding of fractions of a cent can occur on either an aggregate or individual line-item basis, as long as either method is used consistently. This pragmatic legislative response is welcomed.
Overall, many of the changes introduced to improve GST in this year’s Tax Bill should be welcomed. However, there has been some inconsistency in the delivery of the intended purposes through legislation. Given this, we recommend you tread carefully and seek advice before proceeding with any tax decisions that are impacted by the newly enacted changes.
April 2022 Tax Alerts
- Research and Development Tax Incentive – Guidance on claiming software development R&D and upcoming due dates