Tax Updates: 28 October 2025

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.

Exempt or subject to GST – that is the question?

This one may not be everyone’s cup of tea; however, I’ve included it in AWIR this week, as I’ve often been asked the question of whether GST can be claimed on service fees charged by Payment Service Providers or more affectionately, PSPs.

The latest draft interpretation statement issued by IR is titled “GST treatment of supplies of payment processing or facilitation services to merchants”, a 24-page document which endeavours to explain when services provided by PSPs should be considered a supply of financial services and therefore exempt from GST.

The draft IS considers that a PSP may provide five types of services to merchants:

1. making the decision to debit or credit accounts and/or bearing the risk of settlement, ensuring payment is made (referred to as ‘settlement services’);
     
2. providing technology such as a payment gateway and other processing services;
     
3. facilitating the exchange of information between parties through requesting authorisation from the issuer and relaying that information to the acquirer or merchant;
     
4. administrative, compliance or reporting services; and
     
5. marketing, advertising or promotional services.

The draft IS suggests that the core issue to be decided is whether the PSP is supplying the first item – settlement services. If the answer is yes, then there is a supply of financial services which is exempt from GST. However, whether the supply of the following four items should also be exempt from GST, firstly comes down to whether those services can be determined to be supplies that relate to agreeing or arranging the provision of those financial services, or that are reasonably incidental and necessary to that supply, and secondly, whether there is deemed to be one single supply of services or multiple supplies.

It is considered that items two and three would satisfy the “agreeing or arranging the provision of those financial services, or services that are reasonably incidental and necessary to that supply” test; however, it is unlikely that items four and five would get across the line. There is a useful chart contained within the draft IS to illustrate this analysis.

Also useful as a reminder to us all, is how the courts approach the issue of determining the nature of any supply, which can be summed up as a three-step test:

1. consider the true nature of the legal arrangements entered into and carried out by the supplier and the recipient; 
     
2. examine the contractual arrangements between the parties to determine who is supplying what to whom; and,
     
3. examine the supply from the recipient’s point of view by considering the true and substantial nature of what is provided to the recipient for the payment.

So it is important to first identify what services are being supplied to the merchant in exchange for a merchant service fee, and who is supplying those services to the merchant.

Where settlement services are being provided, to the extent that at least some of the service fee should be exempt from GST, the next question is whether there is a single supply of services or multiple supplies (with each having its own GST treatment). Here, again three questions must be asked:

1. What is the true and substantial nature of what is supplied to the recipient for the payment? 
     
2. What is the relationship between the different goods or services supplied? 
     
3. Is it reasonable to sever the supply into separate supplies?

When undertaking this analysis, one should consider whether part of the supply is an aim in itself, or whether it facilitates, contributes to or enables the supply of the dominant part. Also relevant is whether part of the supply is an optional extra and is not in any real or substantial sense part of the consideration for which the payment is made.

Naturally, all of these questions can only be answered by looking at the specific fact set in front of you. 

Should you wish to make a submission on the draft IS, the closing date is 8th December.  

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.