GST – Current issues - Our take on the developments
Tax Alert - October 2015
By Allan Bullot and Jay Bhattacharya
On 17 September 2015, an officials’ issues paper, “GST — Current issues” was released. The paper contains a range of GST issues where the current legislation does not give effect to the policy intention or where technical changes could improve the way the rules operate. Deloitte welcomes some of the changes Inland Revenue has proposed but considers other aspects are of some concern. We note that some of the changes to be introduced are significant and we advise that you speak with your Deloitte tax advisor on these.
The paper deals with some key issues being:
The deductibility of GST associated with the costs of raising capital:
The deductibility of GST associated with the costs of raising capital is a welcome change allowing businesses to claim back GST incurred in raising capital. Historically claiming back costs in relation to capital raising has been difficult as Inland Revenue has considered that no GST can be claimed on costs incurred for arranging the issue of debt or equity.
The suggested changes would allow New Zealand entities to instead attribute the cost of raising capital to its taxable activities and claim back GST input tax deductions on their capital raising costs to the extent of the underlying taxable business activities. In other words the costs of raising capital are to be apportioned between taxable and exempt supplies. This is a welcome and overdue change. Unfortunately the ability to claim these costs may still be some time away as the proposed application date is 1 April 2017.
The eligibility of large, partially exempt, businesses to agree to an alternative method of apportionment:
Inland Revenue has indicated that an extension beyond the financial services sector may allow other large entities such as retirement villages to agree an alternate apportionment methodology with Inland Revenue. Currently retirement villages (and most large entities that make both taxable and exempt supplies) claim GST based on their “intended use” upfront and make periodic adjustments going forwards. This could potentially be very useful for non-financial service providers, and is a good proposal.
Providing more flexibility in the agency rules to agents acting on behalf of purchasers and their principals:
Following on from the selling agency “opt-out” provisions in 2013, Inland Revenue has suggested that opt out provisions will also apply to agents who are acting as purchasers for their principals. The change will allow for separate supplies between the supplier and the agent (purchaser); and the agent with its principal. This change will simplify compliance for a number of businesses.
The ability to zero-rate services provided in connection with land in New Zealand:
Inland Revenue is currently looking at clarifying/altering the scope of the meaning of “directly in connection with land” for the purposes of the GST zero rating of services. We are concerned by these proposals. Currently the interpretation has been limited to a very close relationship being the physical connection the service has with the land in question. This does not extend effectively to services such as the provision of intellectual property (such as architectural services and legal services).
Inland Revenue is proposing that the “directly in connection with land” requirement would include services where there is a direct relationship between the purpose or objective of the services and the land. Therefore services that typically have the purpose or objective of affecting or defining the nature or value of the land (such as the provision of architectural services and assisting in the sale of land) will be considered to be “directly in connection with land” and would not qualify for zero rating.
Inland Revenue has also provided some clarity on a range of technical issues being:
- The ability to take a deduction for second-hand goods for goods composed partially of gold, silver and platinum;
- providing for more consistent treatment of accounting for GST on supplies of goods and services where total consideration is not known at the time of supply;
- allowing zero-rating of goods and services that are provided in relation to ships and aircraft that are exported under their own power; and
- ensuring a person remains eligible to receive a refund for overpaid tax due to a clear mistake or simple oversight where they were in a tax payable position during the relevant period.
Submissions can be made on the discussion document proposals until 30 October 2015. Please contact your Deloitte tax advisor if you wish to make a submission or would like to discuss this, or any other issue in more detail.
October 2015 Tax Alert