Inland Revenue targeting language schools on GST issue
Tax Alert - August 2016
By Allan Bullot and Petra Safkova
There has been an ongoing focus by Inland Revenue with regard to GST on services consumed in New Zealand which are supplied through offshore intermediaries, such as travel agents and booking portals. The latest to come under scrutiny are language schools.
In recent weeks, Inland Revenue issued letters to 75 language schools providing tuition to overseas students through non-resident agents, resellers or retailers. In its letter, Inland Revenue express a strict view that local schools should apply New Zealand GST on the gross fee (not the net fee) paid by overseas students to overseas agents, resellers or retailers for education services in New Zealand. This principle is based on the Auckland Institute of Studies v CIR (2002) case. Inland Revenue consider GST should be returned based on the gross fee before deducting any commission paid to the overseas agent, or from a fee including any margin added by the overseas reseller or retailer. In Inland Revenue’s view, any pre-arrival services are not zero-rated, as they form a component of the total fee and must share the GST treatment of the tuition service, i.e. be subject to GST at 15%.
Inland Revenue is providing taxpayers with the option of correcting their GST position by making a voluntary disclosure which would cover the past 2 years and requiring taxpayers to correct their treatment going forward, provided this disclosure is made promptly.
While we agree with many aspects of the Inland Revenue letter, we believe arrangements where a right to receive education services is in fact legally sold by the overseas reseller or retailer as a principal, and not as an agent, could be viewed differently. Depending on the model the particular school applies it is possible that a voluntary disclosure is not necessary.
If you have received a similar letter from Inland Revenue or have a business which operates similarly, we would encourage you to contact your Deloitte advisor to discuss your GST position.
Tax Alert August 2016 Contents:
- Supreme Court delivers Trustpower decision
- Undeveloped software taxation
- Safe Harbours for Trans-Tasman related party loans
- Employee share schemes? New PAYE rules will impact you
- Making tax simpler… for some
- Inland Revenue targeting language schools on GST issue
- Will the Commissioner be an unlikely beneficiary of the unitary plan?
- A snapshot of recent developments