GST legislation one step closer to enactment
Tax Alert - June 2019
By Robyn Walker
Non-resident retailers selling to New Zealand consumers will be required to register for and charge New Zealand GST from 1 December 2019.
After legislation was first introduced in December last year we are now one step closer to having final legislation after the Finance and Expenditure Committee (FEC) completed its consideration of the legislation and points raised by submitters. The FEC has recommended some changes to the proposals, the most immediately significant one is the recommendation to delay the application date of the rules from 1 October 2019 to 1 December 2019.
From this point on, the legislation will complete its final parliamentary stages. It is unlikely that there will be any further changes to the legislation before it is enacted (which is likely to be in late June/early July).
The legislation will apply to offshore suppliers who make supplies (or expect to make) supplies of “distantly taxable goods” to New Zealand end consumers of NZ$60,000 or more in a 12-month period. Electronic marketplaces and re-deliverers also have a requirement to register and comply with the new rules.
Distantly taxable goods are defined as imports with a customs value of NZ$1,000 or less (excluding GST). Suppliers who reasonably expect 75% or more of its supplies to New Zealand to be under the NZ$1,000 threshold can also make an election to charge GST on supplies over the NZ$1,000 threshold. Tariffs and cost recovery charges will no longer apply to supplies covered by the new rules (alcohol and tobacco are excluded from these rules).
Put these currency translations in a box:
NZ$60,000 is equivalent to: AU$54,990; US$38,028; £30,162; €34,170, CNY298,000
NZ$1000 is equivalent to: AU$916; US$634; £502; €570; CNY4,971
How will a supplier know if a customer is a New Zealand consumer?
Suppliers will need to charge GST if the destination of the goods is a delivery address in New Zealand.
Offshore suppliers will not be required to return GST on supplies to New Zealand GST registered businesses, however they will have the option to charge GST if they reasonably expect over 50% of the value of supplies made to New Zealand customers will be to end consumers. This will simplify processes for offshore suppliers who predominantly supply consumer goods. The offshore supplier will be able to issue a tax invoice in order for a New Zealand business to claim back the GST charged.
An offshore supplier will not have to charge GST if the recipient notifies the supplier that they are GST registered or provides a GST registration number or New Zealand Business Number. An offshore supplier can also enter into an agreement with the Commissioner of Inland Revenue on an alternative method to determine whether the supply is made to a GST registered person (for example if the supplier sells goods of a type that are only purchased by businesses).
When certain conditions are satisfied, an operator of an online marketplace may be required to register and return GST on supplies made through the marketplace, instead of the underlying supplier.
A marketplace would be required to register when customers would normally consider the marketplace to be the supplier, and this is reflected in the contractual arrangements between the parties; for example, if the marketplace authorises the charge to the customer, authorises delivery to the customer, or sets any of the terms and conditions of the transaction.
A marketplace would need to return GST to the New Zealand Inland Revenue and seek to recoup this amount from the actual supplier. If the marketplace is unable to collect the amount and writes off the amount outstanding as a bad debt, it will be able to recoup the GST as an input tax credit in the next New Zealand GST return.
Catering to the needs of New Zealand consumers who want to purchase from retailers who won’t ship to New Zealand there are now a range of businesses who create local delivery addresses and then ship the goods to New Zealand (for example youshop.co.nz, myus.com, kiwishipping.co.nz, buyusa.co.nz). There are also personal shopping services available.
These businesses will be liable to register for GST and will need to collect the 15% GST on the value of the goods as well as their services (regardless of whether this includes international transport).
The sting in the tail for customers using re-delivery services is that they may end up being double taxed with New Zealand GST being added to a supply which may have also had an overseas domestic sales tax applied due to the local delivery address being supplied to the supplier.
Supplies above NZ$1,000
Where the value of an individual good exceeds NZ$1,000 then the current rules will continue to apply, and rather than the supplier charging GST, GST (and any applicable duty) will be collected at the New Zealand border, with the purchaser unable to collect their goods until the tax is paid.
If multiple goods are purchased in one transaction, with the total transaction value exceeding NZ$1,000, then GST should be charged on all individual goods costing less than NZ$1,000 by the offshore supplier. For example, if 6 items costing NZ$200 each are purchased (NZ$1,200 total), GST of NZ$180 should be charged by the offshore supplier. If a consignment includes a mixture of above and below NZ$1,000 items, then GST may be collected at the border by NZ Customs Service rather than being charged by the offshore supplier, depending whether the election has been made to charge GST on all sales (refer above).
It will be necessary for offshore suppliers to provide a GST receipt to customers which provides specific details about the supplies. It will also be necessary for the offshore supplier to ensure that the New Zealand Customs Service has the following details available when the goods reach the New Zealand border:
- The name and registration number of the supplier
- Details of the goods supplied with GST charged
- Details of any goods supplied which do not have GST charged
Offshore suppliers who are required to register under these rules will be able to apply for a simplified “pay-only” registration basis, or alternatively may undertake a full registration allowing them to claim back any New Zealand GST incurred in making New Zealand sales.
Offshore suppliers who are already GST registered under the remote services rules do not need to separately re-register for these new proposed rules.
GST returns will be due in quarterly instalments (March, June, September, and December), with the first return period being a transitional period of 1 December 2019 to 31 March 2020.
Key issues for suppliers
Suppliers who sell low value goods to consumers in New Zealand should start thinking about how the new rules could impact their business and being creating systems to comply with the new rules.
A range of issues will need to be considered and addressed before the rules take effect including:
- Can total sales be easily tracked by jurisdiction?
- Will the level of supplies to New Zealand end consumers exceed the registration threshold?
- What type of supplier are you and what specific rules will apply – actual supplier, online marketplace operator, or re-delivery service?
- What modifications would you need to make to your website or business processes in order to determine whether New Zealand GST should apply?
- Determining the delivery address of the customer
- Determining whether the customer is an end consumer or a GST registered business
- Determining the NZD value of the transaction
- Being able to remove any local sales tax and replacing it with 15% GST
- Including freight charges when calculating GST
- How will returned or replaced goods need to be treated for GST purposes?
- Do invoicing processes need to change?
- Based on the level of expected supplies, what reporting period and compliance obligations will apply?
- Does the business wish to continue shipping to New Zealand or effectively outsource the compliance to a marketplace or re-delivery businesses?
For more information please contact a Deloitte tax specialist.
June 2019 Tax Alert contents
- How are you affected by new individual tax assessment regime?
- Cautionary tale of GST in land transactions
- IR and ATO release administrative approach to determining residence
- What’s the buzz with tax and charities?
- KiwiSaver – flexibility, suspensions, and those over 65
- Tax Bill returns from the Finance and Expenditure Committee with modifications
- Depreciation myths debunked
- GST obligation changes for digital services to Singapore
- Correcting errors under s. 113 update
- Snapshot of recent developments