What’s new in the world of GST?
Tax Alert - February 2021
By Sarah Kennedy and Nathan Lardner
COVID-19…. Elections…. Housing…. How about GST? While these events unfolding around the world capture the majority of media attention, Inland Revenue continues to address the issues and complexities of our GST system. This article summarises the core developments that have been made over the past six months in the world of GST.
What is land?
Land transactions are, and will likely always be, an area of focus for Inland Revenue. The rules are complicated and it’s a common misconception that the compulsory zero-rating rules made things easier. You might think that determining whether a transaction falls within the definition of “land” is straightforward, however, there are a number of situations where it is not as clear-cut.
In December 2020, Inland Revenue finalised and released the question we’ve been asked (QWBA): ‘Do certain supplies wholly or partly consist of land for the compulsory zero-rating (CZR) rules?’ In summary, the QWBA concluded:
- Transferable development rights (TDRs) are not land
A TDR is a mechanism in a district plan which allows development restrictions to be altered to allow for the land to be developed and receive subdivision consent. However, the sale of a TDR itself is not the sale of an interest in land or a right to an interest in land as there is insufficient connection between the TDR and the land itself. Having a TDR merely enables the purchaser to subdivide land in circumstances where they would otherwise not be able to.
- An interest in a sale and purchase agreement for land will usually be land
The sale of a purchaser’s interest in a sale and purchase agreement for land will be a land transaction for the purposes of the CZR rules provided the agreement gives rise to an equitable interest in land. An equitable interest arises when the purchaser has enforceable rights under the contract for which they are able to obtain relief. Inland Revenue’s view is that unconditional sale contracts will meet this criteria as will the majority of conditional contracts. If the contract is conditional, you will need to be very sure that it is legally binding before you treat the interest as a sale of land
- An easement is land
As an easement is an equitable interest in land, the grant of an easement wholly or partly consists of land and is therefore subject to the CZR rules.
GST and unconditional gifts
As an early Christmas gift, on 23 December 2020, Inland Revenue released Interpretation Statement: GST – unconditional gifts. This statement gives non-profit bodies further guidance as to when a receipt will be an ‘unconditional gift’ with no obligation to return GST.
This is an area where you can’t rely on the ordinary meaning of a term. A payment does not need to be condition free to be an unconditional gift. In fact, a payment made for specific purposes with a number of conditions can still qualify as an unconditional gift. The key is whether the payment was conditional on a benefit being received in return, as opposed to whether it was made subject to being used in a specific way.
A payment will qualify as an ‘unconditional gift’ where a voluntary payment is made to a non-profit body (in order for them to undertake their activities) where no ‘identifiable direct valuable benefit’ is provided to the payer (or an associate). Broadly speaking an ‘identifiable direct valuable benefit’ arises where an advantage or gain is provided to the payer in the form of a supply of goods or services. This is why GST needs to be returned on donations and sponsorship, where the donor chooses a sponsorship level that provides them with free event tickets or advertising, for example.
It is important however to note that there are scenarios where a payer may receive a benefit (goods or services) but the payment still retains its unconditional nature. For example the provision of an unsolicited thank you gift or a benefit of a nominal amount should not change the nature of the original unconditional gift. This is because there is not a sufficient connection between the benefit received and the original payment.
- GST and Agency: In the last week of January 2021 Inland Revenue released a finalised interpretation statement on GST and agency relationships. The length of the statement (56 pages) is a testament to the difficulties of the concepts involved. Keep an eye out for next month's Tax Alert, where we'll summarise the final statement.
- The Commissioner's statement on payments received by a GST registered body corporate from the Ministry of Business, Innovation and Employment under the Leaky Homes Financial Assistance Package concluded that they are subject to GST as they are in the nature of a grant or subsidy from the Crown.
- COVID Response: Inland Revenue have released a determination that applies from 4 November 2020 to 31 March 2021 which allows a taxpayer to switch to a one month filing basis (from a six monthly filing) earlier so that businesses can obtain GST refunds faster.
Upcoming deadlines - 31 March 2021
- Non-profit body opt-out elections close on 31 March 2021. If you haven’t made an election to remove any assets from your taxable activity before this date, all assets where input tax has been claimed (no matter how small) will be brought into the GST net (and subject to GST on disposal unless they can be zero-rated).
- If there have been any changes to the way you have used an asset held in your business over the past year (such as from taxable to non-taxable use) a change in use adjustment should be put through your GST return for the period ending 31 March 2021. This is particularly relevant in the short-stay property market if your taxable activity changed or permanently ceased. If you think this may be relevant to you check out the Deloitte Private Blog article issued last year and let us know if you would like any assistance.
As always, if you have any questions about this article or GST generally, get in touch with your usual Deloitte advisor
February 2021 Tax Alert contents
- COVID-19 backup support for business revealed
- Revised Inland Revenue guidance on tax avoidance – Happy New Year?
- R&D Tax Incentive Regime – Planning for the year ahead
- What’s new in the world of GST?
- Inland Revenue and OECD provide further guidance on COVID-19 related transfer pricing issues
- How do continued COVID-19 border restrictions impact tax
- More guidance on cryptoassets – hard forks and airdrops explained
- Snapshot of recent developments