Tax Updates: 21 August 2023

Welcome to this week’s review of tax issues where Richard comments on what’s been happening in the world of tax over the past week. If you have a question or would like a second opinion on any national or international tax issues, please contact Richard via email at richard@gilshep.co.nz.

Inland Revenue issues draft IS’s on GST grouping

Inland Revenue (IR) has recently issued two separate draft interpretation statements dedicated to the topic of group GST registration.

The first IS is referenced PUB00322, “GST – who can group register?”

The IS is a 66-page document, which covers:

• Groups of companies – section 55(1);
• Mixed groups – section 55(8); and,
• Grouping non-residents registered under section 54B.

With respect to the first category, for there to be a group of companies that could group register for GST, there must be a “group of persons” which holds 66% common ownership interests in the companies. Included in the list of potential members are LTCs, multi-rate PIEs and listed PIEs. Limited partnerships are excluded, however, although they may be able to group register under the mixed group category. A company not registered for GST could still become a member of a GST group of companies, provided the group meets a 75% taxable supplies test.

In relation to the second category, the focus is on whether a mixed group (individual, company, trust, limited partnership etc) is under common control. This requires that either:

• one person in the GST group must control each of the others; or,
• one person outside the GST group must control all the GST group members; or,
• two or more persons carrying on a taxable activity in partnership must control all the GST group members.

“Control” under section 55(8) refers to legal control –looking at company shareholders, trustees/appointer for trusts, a limited partner who has contributed at least 75% of the total partnership capital for a limited partnership etc.

Finally, of limited relevance to most of you I expect, that non-residents registered under section 54B cannot group register with New Zealand residents. However, they may be able to register with other non-residents (usually expected to be registered under s. 54B as well).

The draft IS provides detailed commentary for the first two categories, with examples provided throughout to illustrate the salient points. If you would like to submit feedback on PUB00322, you need to do so no later than 14^th September 2023.

The second draft IS references PUB00355, “GST grouping for companies”. Its commentary is targeted towards explaining how the GST grouping rules apply to companies (although its principles are also applicable to mixed group registration) and sets out the main consequences of such registration as being:

• The representative member is treated as carrying on all group members’ activities, as a registered person.
  
• Taxable supplies made by group members to persons outside the GST group are treated as taxable supplies made by the representative member, as a registered person.
  
• Taxable supplies made to group members from persons outside the GST group are treated as taxable supplies made to the representative member.
  
• Taxable supplies between group members are mainly disregarded.
  
• Non-taxable supplies made by or to group members are treated as made by or to the representative member. Intra-group non-taxable supplies are not disregarded.
  
• The representative member claims all input tax deductions.
  
• The representative member makes all input tax adjustments where there is a change in the use of goods or services that group members acquired.

As I mentioned in the previous IS discussion, companies can group if they have common voting interests that total at least 66%. In addition, the companies must be GST registered and/or, in a 12-month period, make taxable supplies to persons outside the eligibility group that total at least 75% of the total supplies made in that period to persons outside the eligibility group. For this purpose, “taxable supplies” includes supplies that would be taxable supplies if a registered person made them (section 55(1)(b)). The 75% threshold test also enables a non-GST-registered company to be part of the group.

PUB00355 is a 52-page document. Its commentary covers each of the seven outlined consequences in some detail, with numerous examples to illustrate, as well as dedicating nearly a third of the content to compliance and administration aspects of the grouping regime. If you would like to comment on the draft IS, the closing date is also the 14^th of September 2023.

This article was originally published through the ‘A Week In Review’ newsletter. If you would like to receive Richard’s tax updates every Monday morning, you can subscribe here.