GST and Bodies Corporate
Tax Alert - March 2015
The proposed new rules for GST and body corporate entities included in the Taxation (Annual Rates for 2015-16, Research and Development, and Remedial Matters) Bill, (the Bill) will go a long way to resolving many of the issues in this area. The proposed legislation addresses most of the issues enabling body corporate entities to be able to elect to either be GST registered or opt out of the GST system.
We consider it is likely there is still some fine tuning required before the final answer is reached, but in its current form the proposed legislation has to be praised as being significantly better than the original changes proposed in 2014.
The GST registration of body corporate entities established to look after the routine functions of building and common property areas held under a unit title structure has been an area of focus in recent years. Historically there has been a lot of confusion over positions regarding the GST registration of bodies corporate resulting in some body corporates being GST registered, whilst others opting not to register, resulting in inconsistencies amongst bodies corporate in practically the same situations.
In June 2014 Inland Revenue caused considerable consternation as the draft legislation appeared to be harsh on the bodies corporate posing significant difficulties for body corporate entities that had a mix of GST registered and non-registered entities if it were to be implemented. Submissions were made to Inland Revenue and they have now released the proposed 2015 legislation which addresses most of the issues. It is good to see how Inland Revenue has acted on various suggestions received.
Originally the 2014 June discussion document sought to retrospectively exempt the routine body corporate activities once it was enacted. While this would have pleased a number of bodies corporate, for others it would have imposed considerable issues. The “legislation via press release” retrospective aspect of the 2014 proposed changes was one aspect that caused considerable distress and uncertainty for many.
Inland Revenue has now clarified that it considers a body corporate that makes supplies to its owners to be carrying on a taxable activity. Despite this, a body corporate that makes routine supplies only to its members will not be required to be GST registered. This will be achieved by excluding the value of the body corporate supplies to members, from the body corporate’s total value of supplies, when determining whether a body corporate is required to register for GST purposes. However, if a body corporate is required to register because supplies to third parties exceed the registration threshold, or the body corporate decides to voluntarily register, it will be required to return output tax on the full value of its body corporate and third party supplies.
As a form of revenue protection for Inland Revenue the Bill provides that a body corporate registered after enactment of the legislation cannot backdate their registration and a four year lock in period is proposed to prevent these bodies corporate from continually changing their registration status. The body corporate also needs to return output tax on the funds held at the date of registration. Care needs to be taken by bodies corporate when considering if they should change their GST status under these new proposed rules.
Overall the new proposals are a vast improvement over the 2014 options, but individual body corporate entities still need to carefully consider how they will be impacted by these changes.
Please contact your usual Deloitte advisor if you would like more information.
March 2015 Tax Alert contents
New Tax Bill
GST and Bodies Corporate
"Cash out" of R&D tax losses
Amending return errors: Taxpayer friendly High Court ruling
Consultation sought on related party debt remission
Tax treatment of life insurance policies
Draft re-issue of rulings for interest deductibility